Surge in private pensions predicted

The Government's pension reforms will lead to a 50% jump in the number of people with retirement savings, a think tank has predicted.

The Pensions Policy Institute (PPI) expects the number of people with private pensions to rise from around 14 million people now to 21 million people after 2012 when the changes come in.

It said this would mean that around 60% of the working age population would be saving for their retirement through a company or personal pension, compared with 40% now.

From 2012 workers will be automatically enrolled into company pension schemes, although they will still be able to opt out.

Minimum contribution levels will also be brought in, with individuals having to pay in at least 4% of their pay to a pension, while employers will contribute 3% and the Government will add 1%.

But the PPI said the reforms, along with changes that are already taking place to the pensions landscape, would lead to a big increase in the number of people saving for their retirement through defined contribution pension schemes.

The number of people who are active members of these schemes, under which individuals and not their employer bears the risk of investment volatility and increased life expectancy, is expected to soar from just five million now to 17 million by 2050.

At the same time, membership of more generous defined benefit schemes, such as final salary pensions, is expected to drop from 2.5 million to 1.5 million during the same period.

Chris Curry, PPI research director, said "The major Government reforms about to be implemented for state and private pensions will significantly alter the retirement income landscape in the UK."

"The Government's state and private pension reforms are likely to mean that more pensioners will receive income from state and private pensions in the future."

He added: "Greater reliance on defined contribution pensions in the future will mean that many more individuals will be exposed to the risks of investment performance and will need to convert pension pots into retirement income and engage with the annuity and retirement products market."

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