The dramatic change in company pension schemes.


The issue of occupational pensions has been in the spotlight for several years, and recent reforms have further sharpened the profile of pensions. What changes have taken place and what does all this mean?

Why pension reforms were necessary

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According to Gov.UK, millions of people are not saving enough for the income they are likely to need in retirement. As life expectancy increases, many workers save significantly less in real terms for their pension.

The government has introduced pension reforms to encourage people to save for their retirement.

What are the reforms?

The new pension reforms are driven by automatic enrollment. According to the pension regulatory agency, every employer with at least one employee now has new obligations, including registering those entitled to a company pension and paying contributions to it.

The first phase of the reforms began in 2012, with the program to continue until 2018. As one of the most significant regulatory changes to pensions in the UK in decades, government ministers believe that the reforms will double private pension income by the time people currently starting work reach retirement age.

Because an employer is required to automatically enroll eligible employees in the pension system, it is expected that millions of workers who may never have considered setting up a pension will now benefit from these employer-driven schemes.

Impact of pension reforms

Automatic enrollment dramatically increases participation in pension schemes, which is a positive benefit for thousands of workers who are entitled to it. The Office for National Statistics (ONS) has already published data confirming the role that automatic enrollment plays in improving pension participation. 59% of employees now have a company pension, compared to 47% last year.

However, reforming the occupational pension system for employers is a complex and costly matter, and experts recommend that companies prepare for it at least 18 months before the date of its introduction. The additional administrative burden involved can be a particular headache for smaller companies, so obtaining expert advice on occupational pensions can be crucial to ensure that they comply with the rules in a timely manner.

Even though company pension schemes may have grown, much of this is due to automatic registration. What the statistics have also shown is that actual contribution rates have fallen. Last year, about one third of employees with company pension plans contributed less than 2%, compared to 11% the year before. However, some experts believe that these figures are misleading and that the falling contributions are due to an influx of members who meet the minimum contribution rates for car registration rather than those already in schemes that opt for lower contributions. Experts argue that contributions must be around the 8% mark or more to achieve a good pension income.

Statistics have also shown that there is a discrepancy in membership fees between those working in the public and private sectors. In particular, in 2014, the employee contribution rate in the public sector was significantly higher than in the private sector at percentages of 7% or more. Slightly more than 10% made up the employee contribution rate in the private sector, while in the public sector this figure rose to almost 50%.

While private sector contributions may dwarf public sector contributions in percentages of less than 4%, it is the public sector that dominates once the 5% figure or more is reached.


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