Pension mission
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Whether we like it or not it is legislation that shapes our pension saving behaviour.
It is because of past legislation that some of us today save in funded pension schemes run by our employers and some of us save instead in unfunded pension schemes run by the state. It is also due to legislation that some higher-earners have not saved anything in pension schemes since something called A-Day happened in 2006 and other lower-earning high-earners have stopped saving in pensions in the last year as they do not want to be taxed twice for doing so.
Legislative changes can cause pension schemes to change form or even disappear altogether. They can also cause pension schemes to appear from nowhere, as the hundreds of thousands of stakeholder pension schemes did not that long ago.
Two powerful pieces of pension legislation, the 2007 Pensions Act and the 2008 Pensions Act, are about to cause more new schemes to appear magically from the ether but this time with members in them and employers contributing to them. These are therefore momentous times pension-wise.
At the moment in this country, we have got about 100,000 active workplace pension schemes. Millions of employees are building up pensions in these existing schemes but millions are not. About 12 million, in fact.
The new pension laws brought about through the two recent Pensions Acts are coming in from 2012 to do something about this.
In a nutshell, nearly all employers will be required by law to set up workplace pension schemes and auto-enrol their eligible employees into them. Not only that, but employers will also be required by law to make at least a minimum level of contribution to their employees’ pensions too.
There is plenty of small print about all that, as you can probably imagine, but that is nowhere near as important as the simple fact that it is about to happen at all. The bottom line is that these new auto-enrolment laws will affect about 1.1 million employers. That means that over the next five years we are going to see about a million new workplace pension schemes established.
Yes, you heard that right - a million new workplace pension schemes. That makes this legislation the most important we have seen for nearly half a century.
To my simple way of looking at things, that means those of us who care about pensions have a five-year mission to undertake. We have got to make sure that as many of those million new schemes as possible provide people with decent levels of pensions. We must not let things drift and leave millions with the minimum (and minimal) pensions required by the legislation.
It is not the easiest of missions but it is important. I am up for it. I would like to look back one day and think that some of us made a real difference.
Steve Bee is managing pensions partner at Paradigm
Readers' comments (3)
John Blackmore | 28 Jan 2010 12:44 pm
Needs to be compulsory. Needs to have an employer contribution. Otherwise for the basic rate tax payer pensions have little to recommend them.
Hopefully the new pensions are only a beginning with compulsion and higher contribution rates to follow. No one has the right to be poor - and to then expect the rest of us to feed them.
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David Trenner - Intelligent Pensions | 29 Jan 2010 7:36 am
Before 1988 membership of most company pension schemes was compulsory.
Nearly 25 years later government is going to do something about Norman Fowler's shocking decision to outlaw compulsory membership.
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Sean | 3 Feb 2010 12:47 pm
This will not work unless it becomes compulsory. If you gave the employees who this is aimed the choice between an employer contribution which they have to match (reducing what they take home) or a higher salary (needed to pay mortgage and feed kids etc) or higher salary we all know which one they will pick.
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