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News: Sign the pledge for your pension

Legal & General is the first company to implement a pilot study looking at ways in which employees can be encouraged to save more for their retirement. The company is implementing a Pension Increase Pledge (PIP) as part of a Department for Work and Pensions research programme. PIP is a technique to encourage saving in workplace pensions where employees agree to stepped annual increases in their contributions from a future date. It is simply an enhancement to your current pension plan.

Around 4,000 Legal & General staff will be invited to 'sign the pledge!' This means that they make a promise to start contributing to the staff pension scheme next July (2006) at the rate of 1% of gross salary, which Legal & General will then match.

Adrian Boulding, Legal & General's Pensions Strategy Director, said, "In addition, employees will pledge to increase that amount each year by another 1% - again matched each year by Legal & General - until they reach 5% of salary, the upper limit for the Legal & General matching contribution."

The advantage of PIP is that it is an affordable way for employees to start or increase pensions savings. Also, employees who make the effort to start saving early by 'signing the pledge' are more likely to end up with a bigger pension fund than employees who put off saving for the next five years but then pay 5% of salary from outset.

For example, Legal & General estimates that a male aged 20, earning テつ£15,000 who signs the pledge and pays just テつ£9.75pm (net) for the first year could have an estimated pensions fund of テつ£479,000 at normal retiring age of 62 which could buy him a pension of テつ£30,900pa. This compares with an estimated fund of テつ£426,000 and a pension of テつ£27,600pa for a male aged 25 next birthday starting pension contributions of 5% of salary (テつ£59.31pm net for the first year) until normal retiring age of 62.

Minister for Pensions Reform Stephen Timms, "While methods of joining pension schemes, such as Automatic Enrolment, can be successful in encouraging people to save for their future, employees do not always act to increase their contributions once enrolled. The study will research if such 'inertia' can be overcome by pre-agreed increases in contributions."

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