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Warning over pension enrolment

The Government's planned automatic enrolment of workers into a National Employment Savings Trust will end up with the schemes being mis-sold, according to an industry group.

Workers will lose out on means-tested benefits to which they are entitled if they join the pension scheme and start saving money

The National Association of Pension Funds said the Government should scrap means-testing and instead simplify the process by paying every retired worker a flat state pension rate of £140 a week.

From 2012, all workers will begin to be automatically enrolled in their company pension scheme, although they can opt out. Individuals will contribute 4 per cent of their pay but the employer will only pay 3 per cent, with the taxpayer providing a top-up 1 per cent.

If employers do not have their own pension scheme, people will automatically be enrolled in the National Employment Savings Trust.

The association's Lindsay Tomlinson said: "Unless it tackles the means-testing trap, the Government faces a major mis-selling scandal.

"This will materialise a few years down the track, when a large number of people discover that being auto-enrolled into Nest has merely resulted in a reduction in means-tested benefits they would have received if they had opted out. This is potentially a big problem that we are storing up."

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