The British government today outlined proposals on how it would tackle long-term pension reform, including plans to establish a National Pensions Savings Scheme by 2012. Through the NPSS, employees would be automatically enrolled into individual accounts and contribute 3% of salary; employers would contribute 4%, and the government, 1%. Up to 10 million people who don't have access to an occupational pension plan are likely to participate in this new fund, according to a government statement.
According to the paper, the NPSS would be a non-departmental public body with administration, servicing and fund management outsourced to private contractors. The paper suggests the scheme will operate with an "annual management charge of 0.3% in the long run."
Members will be able to choose their investment options or be enrolled into a default fund. The government will decide whether to allow members to open accounts through the NPSS or allow branded pension providers to offer accounts directly to individuals. Either way, the account will be portable to enable other employers to contribute if the member changes jobs.
Pensions Minister John Hutton also announced proposals to change the official retirement age to 68 by 2044.
He also said the pension benefit would be linked to average earnings starting in 2012, in an attempt to reduce pensioner poverty. U.K. pension benefits are currently linked to price inflation, which is lower than wage inflation.
