Pension reforms should boost coverage

Category: Pensions
Date: 6/17/2009

The pension reforms that are to be introduced in 2012 are likely to boost their coverage across the UK, although many newly created accounts will be small.

A report by the Institute for Fiscal Studies (IFS) has found that the new scheme, whereby employees not part of their company's pension scheme will be automatically enrolled into a personal account or private pension, will increase the requirements on employers to make contributions.

The IFS says that of the groups of people to be targeted by the new system, 4.7 million employees were not offered that chance to join their company's scheme in 2005. These individuals are likely to be enrolled on a personal account rather than an additional company programme.

Furthermore, in the time between 2001 and 2005, there were some 8.6 million individuals who were in this situation for at least a year. Therefore, there is a good chance that the number of personal accounts could increase significantly over time as personal circumstances change.

In total, the default amount of money raised by the 4.7 million people not offered a place in their company's pension scheme through default contributions would have totalled £4.2 billion.

However, it is thought that many people are likely to accumulate relatively small amounts of money. Between 2001 and 2005, half of the 4.7 million would have made contributions of less than £2,170 over the total period.

Matthew Wakefield, senior research economist at the IFL, said: "In 2005, half of the employees not contributing to a private pension earned less than £14,000, and more than half have no net savings.

"Getting such individuals into pension saving might be seen as a success of policy, but any increase in pension saving is, at least in absolute terms, likely to be small."