The biggest change in pensions in over a hundred years is almost underway.
From October 1, millions of people will become pension savers for the first time or start saving more as firms begin to enrol their staff into workplace schemes.
Up to 11 million people are expected to be eligible for automatic enrolment, with six to nine million newly saving or saving more in all forms of workplace pension schemes.
Pension saving in the private sector is at a record low across all industries, with only one in three private-sector workers paying into a workplace pension. And 11 million of us are not saving enough for our retirement.
Automatic enrolment will put an end to this and transform Britain into a nation of savers, increasing pension saving by almost £11 billion a year when it is fully introduced.
And automatic enrolment means that instead of choosing whether to join a workplace pension scheme, individuals will have to actively decide to opt out. The incentive to save is reinforced by a mandatory minimum employer contribution.
I recognise that business, and smaller firms in particular, are currently operating in very difficult economic conditions. That is why we took the decision to give small businesses more time to prepare and the reforms will be brought in gradually over the next five years. The largest employers, who are most likely to have established pension arrangements, will go first.
The level of pension contributions will also be introduced gradually to help employers and individuals adjust to the costs of the reforms. No one will have to pay the full minimum contribution of 8 per cent until October 2018. The minimum contribution is made up of 3 per cent from the employer, 4 per cent from the individual and 1 per cent in tax relief.
The Pensions Regulator is guiding employers through the process so that they understand what they need to do to comply with their new duties and making sure that they have all the information they need to explain the benefits of workplace pension to their staff.
Up to 11 million people are expected to be eligible for automatic enrolment
The Department for Work and Pensions (DWP) national campaign will help raise awareness of automatic enrolment, including television advertising from later this month.
My overriding priority is to make sure every pound that savers put aside is turned into the maximum possible amount of pension.
Under automatic enrolment, while employers are able to choose the pension scheme they want to use, the scheme must meet certain high-quality criteria. And automatic enrolment is also providing a catalyst for change in the wider pensions landscape.
Many more people saving means more small pension pots in the system, which are inefficient for savers and costly to administer. It is difficult for people to transfer their pensions throughout their careers, leaving their pots stranded or lost.
To help people consolidate their retirement savings into one big pot, we will introduce the automatic transfer of pension pots when people move jobs. We will continue to work with the pensions industry on more detailed proposals for this.
To help people build up the best possible amount of pension we are also watching the issue of charges very closely. I welcome the efforts by the industry to provide clearer information on charges and costs. And if further measures are needed to clamp down on charges, then we will not hesitate to take them. And we want to ensure that people shop around extensively when they turn their pension fund into an annuity.
In all these ways automatic enrolment is helping to bring about a massive transformation in pensions, bringing millions into saving and driving wider reform. Automatic enrolment is the best thing to happen in pensions for a very long time. It is good for Britain, good for individuals and good for growth.
Liberal Democrat Pensions Minister Steve Webb worked at the Institute of Fiscal Studies and was appointed Professor of Social Policy at Bath University.
The biggest change in pensions in over a hundred years is almost underway.
