The government has launched an initiative to encourage employees in workplace pension schemes to save more by automatically increasing their annual contributions.
The Department for Work and Pensions (DWP) is planning to evaluate a small number of case studies with employers which offer and contribute to workplace pensions.
The scheme will be piloted by insurance firm Legal & General. It will trial higher contributions among its 9,000 UK staff and then provide feedback to the DWP. Staff participating in the study will have their monthly contributions raised annually on a voluntary basis. They will know when increases take place and by how much, and will be able to opt out of the scheme.
The DWP initiative forms part of a wider government effort to gather information on how to maximise the potential of workplace pensions. DWP figures suggest that four million workers who could join an occupational scheme choose not to.
Gary Smith, senior consultant at Watson Wyatt, said this type of scheme could prove successful in overcoming the inertia that surrounds pensions.
“With most pensions schemes in the UK, employees pay the default minimum contributions and then never review it,” he said. “Getting that initial contribution right is critical.”
Independent researchers will evaluate the DWP study and it is hoped initial findings will be published by the end of 2006.
The scheme was launched in the same week a report revealed that more than eight in 10 staff on workplace pension schemes do not know how big a fund they will need to support them in retirement.
The survey of almost 800 pension scheme members, by fund manager JP Morgan Asset Management, said only 20% knew that to secure an income of 15,000 in retirement they would need a fund worth about 250,000 by the time they reached 65.