Low-cost pensions could cost UK employees £10bn

THE levelling down of generous company pensions schemes could cost employees £10 billion a year in savings, a key City investor warned today.

The National Association of Pension Funds (NAPF) has called on the Government to make sure that Personal Accounts - the low-cost pension scheme due to come into force from 2012 - are designed to "complement rather than replace" existing pension provision.

The Government is proposing a National Pensions Savings Scheme (NPSS), into which all staff would be automatically enrolled, as part of reforms designed to close an estimated £57bn UK saving gap.

However, the association fears that the scheme could encourage firms to cut existing provision to the three per cent minimum contribution rate set by the NPSS.

If employers do this, the NAPF claimed that the amount being saved in workplace pensions in 20 years' time could be £10bn lower.

Under Personal Accounts, all employees will be automatically contribute four per cent of earnings. This will be matched by three per cent contributions by employers and one per cent in tax relief.