A shake-up for UK pensions

2012 could well come to be seen as a watershed year for UK pensions thanks to the introduction of auto-enrolment. The scheme, which is intended to provide wider access to pension savings, has been described as "the biggest shake-up" in UK pensions for more than a century. According to the Department of Work & Pensions (DWP), approximately 13.5 million workers did not contribute to a pension during 2011 – the vast majority of them in the private sector. Pension saving has declined across all age groups, but the drop among 20-somethings has been particularly marked. People working in industries such as construction, distribution, hotels and agriculture are the least likely to have a workplace pension. Even pension saving in financial sectors has declined sharply. The DWP estimates up to 11 million people will qualify for auto-enrolment. From 1 October 2012, those between 22 and state-pensionable age, who earn more than £8,105 a year and who are not already enrolled in a qualifying pension scheme, will be enrolled in their workplace pension scheme. The worker and the employer will contribute to the scheme unless the worker decides to opt out. Eventually, workers will contribute 4% of earnings and the employer will contribute 3%, with a further 1% in the form of tax relief. The largest companies will start auto-enrolment first, with the whole process having to be completed by April 2017. Around 600,000 people are expected to be enrolled by the end of 2012 and as many as 4.3 million by May 2015.