Pensions Savings

If you don't have a pension and the thought of getting one is constantly nagging at you, then talk about a looming UK pensions crisis could be making you squirm in your seat. You know that you will get around to taking one out, but it's hard to think about saving for the future when there are so many more urgent bills to pay. But drastic times call for drastic measures.

More than eight million people still having no savings for old age in the UK and we are unable to afford the state pension system we currently have. The facts are simple, the birth rate is falling and we're all living longer. Our ageing population means that solutions such as raising the state pension age to 68 should be easier on the taxpayers. Never fear though, help may be at hand as compulsory pension schemes could be the next step to sorting out an impending pension crisis in the UK.

John Hutton, the work and pensions secretary, has recently published the government's outline for transforming Britain's pensions system. The plans aim to encourage all employers that don't offer an occupational pension to join a new National Pensions Savings Scheme (NPSS). It would require that all employers automatically enrol staff in the scheme unless the workers themselves choose to opt out. Individuals will be required to contribute 4 per cent of their salary, while their employers will pay 3 per cent. The government then has to contribute 1 per cent for each member. In the UK, this would have a significant and positive impact for many, resulting in more than 10 million people being able to join a pension scheme. NPPS and similar ventures have proven extremely successful in several countries already, including Australia. Operating NPPS would mean that all companies will be obligated to offer auto-enrolment in the scheme for their employees unless the business already offers auto-enrolment in its own occupational scheme. Recognising that this would involve huge cost implications for organisations, the government has decided that employer contributions would be phased in over three years, or possibly longer for smaller companies. It also means that self-employed contractors would be able to opt to join the scheme if they so wished.

Research carried out by Barclays Financial Planning reveals that 31 per cent of small to medium-sized companies think the NPSS will mean a decrease in company pension schemes as businesses will want to reduce the contributions they make in line with government changes. They will welcome the scheme, as it will mean the average contribution of 4.2 per cent to their employee pension scheme will be reduced. While companies may be seeing the bright side to these potential reforms, strong debate has arisen about creating "ready-to-wear" pensions that may not suit each employee and his or her individual circumstances. The results of these changes remain to be seen.