Tens of thousands of London staff will start paying into workplace pensions for the first time today under a Government-backed initiative aimed at reversing the slump in retirement saving.
The scheme, “auto-enrolment”, will initially only affect people working for major companies. From next spring it will include medium-sized businesses, and by 2018 it will cover all staff.
Workers aged over 22 who are earning at least £8,105 will have a small part of their pay automatically directed into a pension pot if they are not already part of a company scheme.
At first they will pay in only 0.8 per cent of their salary, with their employer topping it up with one per cent, and tax relief adding a further 0.2 per cent. By 2018 this will have risen to four per cent from employees, three per cent from employers and one per cent from tax relief — to total eight per cent.
There is an “opt-out” window for a month after an employee joins the scheme, and another one every three years after that.
The initiative is aimed at reversing the decline in work-based pension saving. Last year the number of members of occupational schemes fell to a record low of 2.9 million.
The cost of providing workplace pensions has soared as a result of changes in taxation, falling stock markets and interest rates, and rising longevity. Thousands of schemes have been shut down, with final salary pensions being driven almost to extinction.
