Government pension scheme arrangement to increase cost for private sector

A number of pension related companies have this week come out with various comments regarding the forthcoming "auto-enrollment" pension scheme with a consensus that the additional cost of implementing this scheme, to be borne by the private sector, will lead to reduced pension contributions from sponsoring companies. The scheme will come into play between 2012 and 2017 whereby workers will be automatically enrolled in company pension schemes.

Under the terms of the arrangement, companies will initially only have to pay 1% of workers earnings as a contribution to the scheme although this will rise to 3% by 2017. Individual employees will need to contribute 4% of their salary to their company pension scheme with the UK government topping up the overall premiums with a 1% contribution. As a consequence, the additional cost taken on board to introduce the scheme between 2012 and 2017 will effectively be paid for by funds "set aside" for pension premiums.

This short-term reduction in employer pension fund contributions will obviously impact millions of workers in the UK although the long-term benefits are there for all to see, with more employees guaranteed some kind of income in later years.