PBR: Full personal accounts contributions delayed until 2017
The Government has given employers the green light to contribute only 1 per cent to their employees’ pensions for an extra year, resulting in members not recieving the full 3 per cent contribution until October 2017 while Treasury coffers are boosted by £2.4bn.
Auto-enrolment with a 1 per cent employer contribution will still begin in October 2012 but previously firms had to increase the amount they were paying into employees’ pensions to 2 per cent in October 2015 and then to the full 3 per cent contribution by October 2016.
In today’s pre-Budget report, Chancellor Alistair Darling has delayed this increase so that employers are not required to boost their contribution to 2 per cent until October 2016 and then reach the full 3 per cent by 2017.
The Government says the move is designed to help businesses suffering from the recession.
But the Association of British Insurers has lambasted the plans.
Acting director-general Maggie Craig says: “When the Government first announced the delay of personal accounts it claimed it wanted to avoid “another Terminal 5” despite the damage to savings by the low-paid and the uneven playing field it created for private providers. Today, it admits this delay will save £2.4bn.
“This money will be saved at the expense getting the low-paid into long term pension saving which is absolutely vital for the future welfare in retirement of the workers of today.
“The Government’s changes to the timetable will mean that employers joining the scheme in 2012 will be able to pay just 1 per cent contribution for a full four years with Government backing.
“This will create a dangerous incentive for employers to join the Governments scheme and level down from the typical private sector defined contribution scheme of over 6 per cent. This will lead to a fall in overall savings levels for the employees affected.”