Starting gun fires for pensions shake-up A series of eye-catching TV advertisements featuring celebrities joyously declaring "I'm in!" has heralded the start of the biggest shake-up in pensions policy in a generation. From Monday, for the first time, all workers earning above a certain pay level will be required to save a portion of their earnings towards a pension for their retirement. They will have the right to opt out, but ministers and officials are relying on the efficacy of "nudge" theory - believing inertia will lead people to remain in savings plans if the state shoves them in the right direction - to ensure only a minority will do so. The largest employers - those with 120,000 or more workers - will be the first to implement the new programme, under which workers contributing at least 4 per cent of pay will receive a contribution from their employer of 3 per cent. The determinedly upbeat approach of the TV ads belies the scale of the demographic challenge. In little over 20 years one in four Britons will be aged 65 or more , and there is a widespread consensus that the UK's complex and opaque system of private and state provision is too expensive and risks leaving millions in poverty unless adjustments are made. For decades, the UK has been able to maintain one of the least generous state pension schemes of any industrialised nation in large part because private sector provision has been so generous. Data from the Office for National Statistics shows that occupational pensions have succeeded in lifting a significant percentage of retirees from poverty. In 1977, 58 per cent of all pensioners were in the bottom quintile for income, but by 2008/09 that had fallen to 38 per cent. Pensioners in the third quintile rose from 9 per cent to 29 per cent of retirees by 2008/09. However, by the middle of this decade, it became apparent that rising longevity, falling interest rates and weak stock markets meant employers could no longer afford to continue the strategy. Figures from the pensions regulator and the government's Pensions Protection Fund show that fewer than 16 per cent of private sector final salary schemes remained open to new members by March 2011, down from just under half in 2006, while the aggregate level of underfunding in occupational schemes is close to £300bn. "Things have got to change," said Joanne Segars, chief executive of the National Association of Pension Funds, an employers" body. Less than half the workforce is saving into a pension. Employers are at the sharp end of the new arrangements and many are worried about their administrative complexity. John Cridland, CBI director-general, supported the scheme but said the change was "rightly" being phased in over many years to ensure it remained "affordable for businesses in these tough times." The scheme comes as government plans to overhaul the basic state pension - to make it simpler and more generous and to remove what is widely regarded as a potential stumbling block to personal savings - are being re-examined by Downing Street, which is worried about the political impact millions of potential "losers" could have. The Institute for Fiscal Studies has concluded that broadly speaking, auto-enrolment will leave people better off. But few politicians would have chosen to introduce it at a time when individuals and families are facing the most sustained period of income stagnation for at least 50 years. Business leaders acknowledge that the number opting out will be bigger than appeared likely when the plans were conceived in a far healthier economic climate. Politicians must hope it remains small enough to quell pressure for a compulsory scheme which would call for rare reserves of political courage. In Australia, however, employers have been compelled to make pension payments for their employees for more than 20 years. Jeremy Cooper, an Australian lawyer and fund manager who conducted a 2010 government-commissioned review of the country's superannuation system, believes the UK will have to introduce its own form of compulsion it if it wants to get to grips with pension undersaving. "Compelling people to save might offend the principles of rugged individualism," he said. But it's actually common sense. Additional reporting by Josephine Cumbo