Minister favours auto opt-in for company pension plans

The UK is likely to adopt a system where people are automatically opted in to company pension schemes to encourage them to save more for retirement.

Alan Johnson, secretary of state for work and pensions, said a system of “auto-enrolment” would go a long way to meeting the pensions challenge that the UK is currently facing.

He said there are 4.6 million workers in the UK who are not using the contributory schemes offered by employers. “We want people to have to opt out rather than opt in to company schemes,” he said.

The final Turner Commission report into pensions, due to be published in the autumn, will examine the way forward for pensions, one aspect of which is compulsory saving for workers.

Despite the current poor take-up of pension schemes, Johnson seemed to rule out the compulsion approach.

“We can go much further through the voluntary route,” he said. “Employees must have an informed choice and encouraging them to save is very important.

“Pure compulsion would be resented by some people who would want the choice [to join a scheme],” he said.

In Australia, for example, compulsory contributions have failed to make a difference. Its savings ratio has fallen, and it has one of the worst records for individual savings in the first world.

Johnson, who spoke at the Chartered Institute of Personnel and Development’s (CIPD) reward conference in London last week, called on employers to communicate the benefits of pension schemes more clearly to staff.

“The role of employers in encouraging people to save more is crucial,” he said.

The government is launching a website on pensions best practice for employers later this year.

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