Presenter: I'm joined now by Caroline Rookes, Director of Private Pensions at the Department for Work & Pensions, who will outline the purpose for the Enabling Retirement Savings Programme, what initiatives there are to help low earners and how these fit with the new employer duties relating to auto-enrolment. Caroline, can you give us a brief outline of the Enabling Retirement Savings Program please?
Caroline: Sure. The Enabling Retirement Savings Programme is the rather long winded name for the programme that's going to introduce automatic enrolment and the new pension scheme NEST from 2012. So from 2012, starting in 2012, all employers will have to enrol their workers into a pension scheme, and the period for enrolment will go from 2012 to 2016 starting with the largest employers. Once the date the employer is required to enrol their workers comes around, and they will be told by the Pensions Regulator when they're due to enrol their workers, they'll have to enrol all their workforce between the ages of 22 and 65 into a pensions scheme. And they can enrol them into almost any pension scheme, NEST is just one option that's available to them, and the idea is that the individual is enrolled into the pension scheme but has the opportunity to opt out, which means that we build on their inertia. If they stay in the pension scheme then the employer will have to contribute to the pension, as will the individual, and then they will get tax relief on top of that.
Presenter: And what exactly is your role at the DWP?
Caroline: My role as Director of Private Pensions is to sit on top of this programme. It's a huge programme, it will involve over a million employers enrolling their workforce into pension schemes, and we believe between four million and eight million people will start saving or save more for the first time. There are three public bodies that are involved in this programme, as well as the rest of the pensions industry. The three bodies are: the Department for Work & Pensions who have responsibility for the planning of the programme, for the policy, for the legislation and for communications with individuals; for the Pensions Regulator, they have responsibility for telling employers what they need to do, when they need to do it and for ensuring that employers comply with the new duty; and then there is the NEST Pension Scheme run by NEST Corporation. And I have to work closely with Bill Galvin in the Pensions Regulator and Tim Jones in NEST to ensure that the whole thing delivers on time and within budget.
Presenter: And what initiatives are being offered to help low earners save?
Caroline: Well the whole programme is really aimed at helping people towards the lower end of the income spectrum save, and it does this in two ways. One is as I've said by using automatic enrolment. A lot of the research that we've done suggests that the reason a lot of people don't save is because of inertia, because they don't get around to it. Automatic enrolment stands that on its head and it puts people into a pension scheme unless they want to opt out. So they don't have to worry about making difficult choices. Having stayed in the pension scheme the employer will then have to make a minimum contribution to their pension of 3% of a band of earnings between about £5,000 and £35,000. The employee will contribute 4% and there'll be tax relief on top. So in effect for every pound they've put in, there is another pound put in on top. And I guess the last thing is that we understand people on lower income tend to be people who don't understand the system, who have lower financial literacy, and we're working really hard to simplify the language of pensions. We're working with NEST and with the pensions industry to try and ensure that we all use simpler language and that we get consistent messages out. And there will be the money guidance service available to give people help if they need it, and that includes tools, online tools to enable them to work out what their best course is as far as saving for a pension.
Presenter: And are there any other new employer duties that come in relating to auto-enrolment from 2012?
Caroline: No, the duty is to enrol the workforce. As I say it will be staged in between 2012 and 2016. Once the initial auto-enrolment has taken place, employers will be required to re-automatically enrol their workforce every three years so that people who have opted out in the first round still get a chance to be brought in later on if their circumstances have changed. But apart from that the employer chooses the pension scheme and enrols them into it and the Regulator will tell the employer when they need to do it.
Presenter: Can you give us a brief outline of how means tested benefits and private savings interact, and how much capital people can hold before their state benefits are affected?
Caroline: Well, as things stand at the moment, people over pension age with income under a certain level are entitled to pension credit to top up their state pension or private pension. If they have savings of under £10,000 it's ignored. Savings above that are taken into account as income, so for every £500 they have above £10,000 we deduct one pound income from their entitlement to benefits. That of course is the position now; things are likely to change in the future. So it would be wrong for people to make decisions now about saving on the basis of means tested benefits going forward. The other thing that is relevant as well is that the previous government have made changes to the state pension to make it more generous by reducing contribution, so more people will have that going forward, and the current government is consulting on changes to the state pension. One of the options there is a more generous flat rate state pension which would lift people in future off means tested benefits and therefore any private pension savings they've got won't be affected, they will be theirs to keep.
Presenter: Caroline Rookes, thank you very much.
Caroline: Thank you.
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