cost of rules that will force firms to enrol their employees in pensions schemes is likely to hit wages or be passed on to consumers through price hikes, Steve Webb admitted today.
Firms have told the pensions secretary that they will reduce pay and other benefits, increase prices or cut dividends to cover the costs of contributing to employees’ pension pots, Webb said.
He also confirmed that all workers will have to pay into the scheme for at least one month, regardless of whether they then choose to opt out – though they can claim their money back.
Webb described the policy, which will automatically enrol some 11m employees in corporate pensions schemes, as “the biggest boost to pensions for a century,” and “a truly radical social change.”
The Department for Work and Pensions (DWP) expects to enrol 800,000 people by the end of the year, with around a third expected to opt out, leaving roughly 500,000.
This came as new data revealed that the number of people actively contributing to occupational private sector pension schemes continued to slide last year, falling to 2.9m compared to 6.5m in 1991 and 8.1m at its peak in 1961. This is despite the reclassification of large public sector schemes such as the Post Office and a large population rise over the period.
Webb also reaffirmed the DWP’s commitment to a £140 per week flat rate pension, despite reports David Cameron will cancel the plans.