Bosses force government to defer pension plan for low-paid

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Bosses force government to defer pension plan for low-paid until 2016

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Employers today scored a victory in their campaign to delay a new retirement scheme for low-income workers after pensions minister Angela Eagle agreed to defer its implementation until 2016.

The scheme, due to phased in over three years from 2012, will be delayed by a year to give employers more time to cope with the higher costs and administration. Eagle, who was intensely lobbied by employer groups, said that small and medium-sized businesses would benefit most from the delays to personal accounts.

Unions said they were frustrated by the move at a time when millions of workers were denied a pension by their employers. A TUC spokesman said that the scheme was needed to help tackle the pensions crisis and waiting another year was "disappointing".

The Association of British Insurers warned that the delay would lead to lower savings and accused Eagle of botching the scheme and putting its success at risk.

Personal accounts are designed to cover the estimated nine million workers currently without access to a pension. Under the plan, employers will be forced to automatically enrol staff into the scheme and contribute 3% of their salary. Employees will contribute 5%.

The government agreed to phase in personal accounts over three years from 2012 and set up an agency, the Personal Accounts Delivery Authority, to implement the plan.

Critics of personal accounts argue that the contribution rate from employers was too low for many low-income workers to generate retirement incomes that would escape means-tested retirement benefits. In Australia, where a similar rule exists, employers must contribute a minimum 9% of income.

The National Association of Pension Funds said this week that a joint contribution rate of 10% should be adopted by employers to generate decent pensions compared with the 8% under personal accounts.

Eagle said the government remained committed to the plan, which is due to begin testing next year. "

The TUC spokesman added said: "It is obviously disappointing that the new system will not be fully operational until 2016. We understand there are practical issues that need to be discussed about its implementation, but the pensions crisis is getting worse with every day that employers retreat from providing decent pensions. This measure means that many workers will go for too long before they can start building a pension under the new rules."