LOW-INCOME workers will pay the long-term price for the government's decision to delay the full introduction of its flagship workplace pension scheme, experts have claimed.
Under the personal accounts scheme, workers aged over 22 and earning more than £5,035 a year will be automatically enrolled into their employer's existing pension or into the government's personal accounts, with the right to opt out. The accounts, a
imed at giving more workers access to a low-cost pension, require minimum employee and employer con- tributions of 4 and 3 per cent respectively.
However, the Department of Work and Pensions (DWP) has now announced that those contribution levels will be phased in over four years. The contributions will start at 1 per cent in 2012, rising to 2 per cent after three years and only reaching 3 per cent in 2016, four years later than originally planned.
The largest employers will be the first to introduce auto-enrolment, followed by medium-sized firms and then the smallest. The implementation programme was slowed to reduce the administration and financial burden on employers.
But Maggie Craig, director of life and savings at the Association of British Insurers, said the four-year delay before contributions reach 3 per cent was unacceptable.
"It means no employer will have to pay more than 1 per cent until October 2015 – the rate of saving for people in the scheme will move at the pace of the slowest," said Craig. "As things stand, employers may be encouraged to ditch private schemes, which benefit from higher contributions, in favour of the state-backed scheme where they could pay just 1 per cent for at least three years, with government approval."
Tom McPhail, head of pensions research at Hargreaves Lansdown, called the 18-year delay between 1998 – when the government first published its pension reform proposals – and full implementation a "shocking waste of an opportunity".
He estimated that a worker on average earnings would have a pension fund worth some £52,000 less in 2016 than if they had started saving in 1998. "This government has failed an entire generation of pension investors who will be middle-aged by the time auto-enrolment is fully operational," he said.
Rachel Vahey, head of pensions development at Aegon in Edinburgh, accused the DWP of complicating a simple auto- enrolment concept by moving to a protracted implementation period. "The DWP should still urge people to start saving as soon as possible – if they wait until they are automatically enrolled in and receive their full contributions they could lose out on valuable years of retirement savings," said Vahey. "A good income in retirement depends on saving as much as you can for as long as you can, and that means acquiring a sticky savings habit early on."
