U-turn over company pensions

PLANS to make occupational pensions compulsory will be proposed by the Government today in an attempt to ease the pensions crisis.

In a reversal of current practice, employees would automatically become members of a workplace scheme when they join the company and would have to specify if they want to opt out.

Other proposals include 'retirement planners' showing employees how much they should be saving if they want to live comfortably in old age.

Workers could also be sent a statement from employers illustrating how much their pension is worth when combined with the State benefit and, if applicable, their private pension.

Work and Pensions Secretary Andrew Smith will set out the proposals as the Government comes under growing pressure to tackle the crisis.

Experts say Britain's savings gap - the shortfall between how much people are saving and how much they need to save for retirement - is around £27bn.

Scores of companies have closed their final-salary schemes in favour of riskier plans which depend on the stock market.

The proposal for compulsory workplace pensions - based on the US model - will be introduced in pilot schemes before being taken up nationwide.

Other measures being announced will require a change in the law and will be set out in the Pensions Bill later this month. Smith will argue that the Government wants to allow people to make an 'informed choice'.

At present, new employees have to sign a form committing them to the company pension. This would be changed so workers would have to tick a box if they did not want to become members.

Research by the National Association of Pension Funds demonstrates that companies which automatically enter employees into workplace schemes retain 91% as members. Where joining is not automatic, 73% of employees remain members in final-salary schemes.

The association's communications director, Andy Fleming, said: 'We have been arguing for a long time that we should return to the situation as it was in the Eighties, where employers could insist as a condition of employment that the person joins the company pension scheme.

'More people save if they are automatically entered into the pension scheme. If this measure helps to boost membership of workplace pensions then we are all for it.'

Tory work and pensions spokesman David Willetts claimed the proposal to make occupational schemes compulsory was first put forward by the Tories nearly a year ago.

He said: 'It is a useful step. But the Government still needs to do a lot more to tackle the crisis. We still have means testing for State pensions and we still need to create new incentives to save.'