Roll Out Of 'Revolutionary' Pension Scheme
A landmark scheme that will automatically place millions of people into workplace pensions has come into effect.
Up to 10 million people are expected to be enrolled in what is hailed as the biggest pensions revolution since David Lloyd George ushered instate pensions a century ago.
The new automatic enrolment regime will initially affect only companies with 120,000-plus staff - many of them banks or supermarkets.
Firms with fewer workers wil be required to join over the next five years. Staff and employers will both pay into the plan.
Savers will typically need to put aside just over £2 a week to get them started, according to Nest, a not-for-profit pension scheme set up under the new rules.
In the first four years of the scheme, workers contribute a minimum of 0.8% of earnings which works out at around £2.37 a week for someone on an average annual salary of around £20,000, Nest found.
But for those on low incomes like Hannah Perry, it may still be a stretch too far.
"If I've got a bill to pay, I will look to other ways in which I can pay for it, out of the money I've got. So you start cutting your costs and a pension is the first easy one as it doesn't hit you for a very long term," she said.
Based on this average, employers will contribute nearly £3 per week as well and almost 60p will be added in tax relief, meaning the total going in is just under £6 a week, or around £25 a month or £309 a year.
But by 2018, as the minimum contribution increases, employees will be putting aside around £12 of their pay every week, in return for almost £9 from their employer and nearly £3 in tax relief, leading to average annual contributions of £1,235, Nest said.
Automatic enrolment aims to tackle growing concerns about an old-age poverty crisis, as people live for longer but fail to put enough away for their later years.
Joanne Segars, chief executive of the National Association of Pension Funds, said: "The UK is drifting towards an iceberg when it comes to paying for its old age, and we need radical reform like this.
"Crucially, this reform will reach those who have no pension: the young, the low-paid and those working for small businesses."
But some analysts have said the Government should go further in encouraging people to save, for example by making pensions more flexible so that workers can take some cash out if they need to or by increasing tax-free Isa allowances.
Ros Altmann, director-general of the firm Saga which provides insurance, holidays and financial services to people over 50, said this is a long-term aim - to tackle growing concerns about a poverty crisis in old age.
"It's really important for people to think carefully, for their later life financial support. They'll have a long period of retirement in most cases, they'll need money to look after themselves and it's not going to come by magic," she said.
An advertising campaign featuring TV stars such as Theo Paphitis and Nick Hewer was recently launched to raise awareness of the scheme.