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Ethical Pensions: Auto-Enrolment Encourages Saving Culture/ 28.10.2011• A. Velasco• Posted At 04:00 PM

Following a rash of surveys that revealed Britons are less likely to save when family budgets are hard-pressed, analysts say that the new government programme of automatically enrolling workers into a pension scheme is a welcome reform.

Still, private savings continue to be encouraged. A stakeholder pension is a government regulated and flexible option.

Lauded Measure

The auto-enrolment measure has received much support, as the Department for Work and Pensions reports that over half of employers and employees support the change.

The reform, which will be implemented in 2012, was conceived under the Labour government and aims to increase the amount of workers with retirement savings by mandating that employers contribute to pensions. The government is also set to give a contribution of 1% of their salaries in the form of a tax break.

Though it is not encouraged by the government, workers have the option for opting out of the scheme in favour of their own retirement savings plan.

Those considering an alternative to auto-enrolment may find interest in ethical pensions, which are funds that make responsible investment decisions with your money.

Initially, the employer contribution will also be only 1% of staff salaries, but this is set to increase to 3% by 2017.

Incentive missing

Some criticise the plan because of its very low minimum employer contributions. There are fears that companies who pay more than 1% will have no incentive to maintain their higher rate, leaving employees worse off after the savings reform.

Currently, employers contribute at a 6% rate, on average.

Others are worried that the increased expenses of implementing the auto-enrolment at their firm will cause companies to reduce future employee benefits to meet the costs.

In addition, while experts say that the move is a positive step by the government, savers are warned not to stop private investment for the future because of the new compulsory company pensions.

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