Plans for 'automatic pensions'

PENSIONS Minister Alan Johnson has announced plans that could force employers to automatically enrol employees on to company pension schemes.

'We have put in place measures that will restore confidence and encourage people to save, but we also need to end the 'head in the sand culture' – and that is not something the Government can do on its own,' said Johnson.

Under the Pensions Bill, due to come into force in April 2005, the new measures will give the Government power to request that pension schemes with a low take up must automatically enrol its employees on to the scheme.

'I want to see more companies offering clear, high quality information or automatically enrolling workers into pension schemes so that individuals do not lose what is effectively part of their pay because of inertia or confusion,' said Johnson.

According to the Department of Work and Pensions, out of Britain's 28m workforce around 13m - less than half - have signed up to occupational schemes.

While the new rules could increase this level, employees will still retain the right to opt out of the company scheme but will have to actively make this decision.

Steve Bee, head of pensions strategy at insurer Royal London Group, said: 'It's a good idea to automatically enrol an employee but only if an employer is paying into the scheme. Because of the way pensions are means tested it makes the scheme far more suitable if an employer pays in too.'

David Willets, Shadow Work and Pensions Secretary, dismissed the moves as simply 'a tax on employees and a tax on employers'.

Bee agreed and added: 'The Government should rather put in place an environment where it is beneficial for everyone to join the company pension scheme.'

A Conservative Party spokesman said: 'We agree with what he (Johnson) has proposed with regard to inertia selling as this is something we proposed two years ago. However, we don't agree with the Government if it plans to move towards complete compulsion as it treats adults like children.

'Australia went along that path and it saw a decrease in other forms of savings. If it happens here it will do nothing to relive the pension crisis.'

Bee also criticised the Government's plans to create a challenge fund, where specially trained union representatives would give advice on corporate pension schemes.

'Nobody should give advice on mass joining of pension schemes without adequate experience. And I don't know how the Government plans to train these trade union representatives in time.'