Every worker in Guernsey will be auto-enrolled into a pension scheme via their employer from the year 2020 to save for their own retirement.
Details of the scheme have been unveiled by the government today, with an estimated 20,200 people in Guernsey and Alderney joining the scheme.
It would see individuals eventually paying up to 6.5% of their salary into a pension plan, with the employer topping it up with a further 3.5% of the salary. That amount will be phased in from the year 2020 to the year 2027 as follows:
Those earning less than £7,176 per year wouldn’t join, and employees would be free to opt out of the scheme if they wished.
A States-commission study by BWCI Consulting, published today, estimates around 20% of people would leave the scheme, meaning around 16,200 people, or 39% of the workforce, would be a part of it.
Employment & Social Security President, Deputy Michelle Le Clerc, said: “The Old Age Pension was only ever intended to provide a basic platform level of retirement income which, at a full level represents an income replacement rate of 40% for a lower quartile earner. The projections show that, with the introduction of the proposed auto-enrolment system, an income replacement rate of about 80% can be achieved. We are pleased to see that this exceeds the target income replacement rate as recommended by the UK’s Pension Commission.”
Such a system has already been introduced in the UK.
Today’s report warns an auto-enrolment pension could mean consumer spending goes down in the short term because people will have less disposable income, but adds that could be offset by those who retire having more money.
The scheme would mean an additional financial overhead for employers.
Deputy Le Clerc said: “While some employers might find the prospect of an additional cost worrying, we are committed to developing a low-cost scheme with minimal administration burden to limit the impact on employers.”
Deputy Gavin St Pier, President of the Policy & Resources Committee, said: “Once the scheme is fully established by 2027, the net effect at that point is expected to represent a decrease in personal income tax revenue of around 1.5%. This will need to be planned for by the States through the discipline of the Medium Term Financial Plan.”
“But it is in the best interests of the community as a whole that we do so, as the expected living standards that it will produce for members in the longer term is well above that which could be reasonably expected by individuals relying on the Old Age Pension and Income Support as their sole retirement income.”
