2012 is a big year for the UK. While the Olympics will grab much of the attention, a quiet revolution begins that will eventually see EVERY employee enrolled into a pension. Pensions Minister Steve Webb (right) explains why the Government is embarking upon this path.

When you think about 2012, what do you think of? Possibly the Olympic Games being held in London?

When I think about 2012, I think about people being enrolled for the first time into a workplace pension.

Beginning next October, for employees of the biggest companies, and gradually including workers in the smallest firms by 2016, this change will have a massive effect on saving in this country.

Here is what we are doing and why.

Pensions timebomb

Eleven million of us will live to be 100. We are now spending around a quarter of our lives in retirement

Yet at the same time, we as a society have never been saving less for our later lives.

Currently, only one in three workers in the private sector is contributing to a workplace pension. Young people often prefer to save for a house instead of a pension.

And the end result is that people simply are not prepared for their retirement and could find themselves poorer as a result. Clearly, something needs to be done.

We know people want to save, but too often it becomes something to think about another day. And as we all know, the sooner you begin to save, the better.


  • Large employers from Oct 2012

  • Smaller employers to come on board gradually. See detailed timetable

  • All firms by Feb 2016

  • Companies can join earlier

This is why every employee over the age of 22 and earning above the PAYE threshold – that's over £7,475 (2011/12 tax year) a year – will be put automatically into a workplace pension.

If the company you work for has a pension scheme already, then you could be enrolled into that scheme. If not, then your employer will have to pick an appropriate pension scheme.

We have made that easy for them by creating Nest (National Employment Savings Trust) as a low cost, easy to use option, which is run on a not-for-profit basis and designed especially for people new to pension saving.

How much must you put in?

Having a pension means that you will be expected to pay into it. We will start small, with 0.8% of your pay going into the pension, and it will eventually go up to 4%.

And yes, we realise that in these tough times, every little bit counts and a 4% reduction in your pay packet will seem like a lot.

But the key to workplace pensions is that your employer will have to contribute as well. And we will also help, by giving you an additional 1% in tax relief. This will mean that eventually you will be putting 8% of your pay aside for your retirement.

Min contributions (as % of earnings)

Date Employee Employer Tax relief Total
Oct 2012 - Sept 2016 0.8% 1% 0.2% 2%
Oct 2016 - Sept 2017 2.4% 2% 0.6% 5%
Oct 2017 - 4% 3% 1% 8%

Depending on how much you save now, this may seem like a lot or it may seem like not enough. You will of course have the option of contributing more to your pension as you earn more, and it's important to remember that you will have the option of opting out at any time.

If you feel saving isn't right for you, we will not force you. However, after three years, we will come back and try again. Hopefully, it will be the right time for you to save.

These changes will make it as straightforward as possible for you to get saving for your retirement. Saving will be automatic, you will put money aside, and your employer will contribute too.

The basic state pension will always be there, and these changes will ensure that people have the opportunity to save on top of it for the lifestyle they want in retirement.

Views expressed are not necessarily those of MoneySavingExpert.com.