The government’s latest move to ensure people start to save for retirement is to introduce compulsory pension’s contributions for employees and employers. The scheme is due to be launched in 2012.

 

However, these proposals have been met with wide criticism as in the current environment both companies and employees are under pressure to meet existing financial obligations. The icing on the cake is the lack of detail on how the scheme will be run, who will qualify and how this will impact organisations and employees alike.

It is estimated that the new scheme could potentially impact up to 10 million workers from the age of 22 to 65. It has been suggested that contributions for employees will be in the region of 4% of earnings between £5,035 and £33,540. Employers will have to provide 3% with the government’s tax relief topping up the pot. The funds can be invested in a number of ways depending on the employees risk profile. For example, in ethical, social or environmental funds however if no fund is chosen a default fund is set up.

 

The main question to be asked is whether these initiatives will help individuals over the long-term as there is clearly a demographic shift, where Britain is moving towards an aged population. Although there is no straight forward answer, the general direction and objective of this initiative remains robust: to ensure that individuals rely less on depleting public funds for their pension and begin to take responsibility for their own retirement.