The plan, announced by Work and Pensions Secretary John Hutton, provides that employees who opt to remain enrolled have to set aside at least 4% of pay that will be matched by a 3% employer contribution. Workers will get another 1% in the form of government tax relief, according to the government. Employees can opt out altogether.
Hutton proclaimed in his announcement that the proposal “will kick start a new savings culture in the UK .” He said the government expects workers to put about £8 billion annually into their retirement nest eggs.
The plan is expected to be introduced in 2012. Hutton said there would be a “choice of funds for those who want it”, including socially responsible and ethical offerings as well as a default option for those who do not specify how they want their money invested.
Employers can also auto enroll workers into their existing retirement plan if it meets specified government standards, Hutton said.
According to the announcement the long-term costs for personal accounts will be in line with those set out by the Pensions Commission of around 0.3% of funds under management. Finally, there will beno transfers in and out of personal accounts and a maximum annual contribution during the first year of £10,000.
The reforms have broadly met with enthusiasm from campaigners and unions, according to a news report in the British newspaper Guardian. TUC general secretary, Brendan Barber, said: “Today’s proposals are to be warmly welcomed. They are another important building block in a new pensions settlement. Compulsory employer contributions are a major gain for people at work.”
The charity Age Concern also welcomed the proposals. Director general, Gordon Lishman, said: “Personal accounts will offer a beacon of hope to millions of people struggling to find their way through the pensions wilderness.”
“The proposals put forward in this white paper are good news for anyone without access to a decent occupational pension, many of whom are women, and should finally make pensions saving worthwhile for the majority,” he added.
The auto enrollment aspect of Hutton’s plan comes as the trend toward automatically putting eligible workers into a retirement program continues to sweep through the US retirement savings scene (See Auto Enrollment Biggest 401(k) Change after PPA ) and has been the subject of major regulatory pronouncements on how such plan features can be implemented (See DoL Releases Default Investment Option Safe Harbor ).
More information on the British proposal, including the full text of a Hutton White Paper, is here .