Auto-enrolment pensions extended to millions

The government is to extend workplace pension auto-enrolment to insurance-based workplace pensions from 2012.

Pensions and work secretary James Purnell claims millions of savers will benefit from the change to auto-enrolment – which already covers trust-based pension schemes.

"At present around £6.7 billion is saved into workplace personal pensions annually by some three million employees, making it the second largest form of private sector pension membership in the UK.

"There are currently 4.7 million people who work for a company with a workplace personal pension and are not members. This announcement will extend the benefits of automatic enrolment to millions more people - giving them the means to save for their retirement for the first time."

Pensions reform minister Mike O'Brien added: "Automatic enrolment is key to combating the inertia that prevents people from saving."

The change to include insurance-based pension schemes was only permitted after the European Commission confirmed the move met EU laws.

Stephen Haddrill, from the Association of British Insurers (ABI), said: "It is extremely good news that the government has confirmed its plans to include automatic-enrolment into workplace personal pension schemes as part of the 2012 pension reform package.

"This clarification will enable workplace personal pensions schemes to operate automatic enrolment and play an important role in the 2012 reforms."

Workplace personal pensions are offered through your employer but operated by a personal pension provider. In 2012, employees will have to specifically opt out of a scheme – instead of opt in as is the case at the moment.

Rachel Vahey, Aegon head of pensions development, said: "Some three million people in group personal pension schemes can rest easier now this major roadblock in the implementation of UK pension reform has been removed - it is a very positive step forward.

"This announcement confirms the government wants group personal pensions to play a key role in pensions beyond 2012. Denying contract-based schemes the ability to implement automatic enrolment could have forced their closure, leaving millions worse off in retirement.

She added: "This would have been completely against the Government's stated aim of protecting good existing schemes and targeting personal accounts at people without access to one."