Despite the introduction of Auto Enrolment a leading think tank is calling for pension contributions to be made compulsory to help avoid a looming financial crisis.
The Pensions Policy Institute (PPI) has warned that despite the introduction of Auto Enrolment, many people will still not be saving sufficiently for retirement and that compulsory pension contributions might be needed.
Auto Enrolment contributions
Auto Enrolment will see millions of employers having to set up a workplace pension into which their employees will be enrolled. For large employers this process has started and will continue until 2016 by when smaller businesses have to comply with the legislation.
Contributions will start at just 2%, with at least 1% having to come from the employer, rising to 8% from October 2018, including at least 3% from the employer. However, there are concerns workers could opt out after being automatically enrolled and that even for people who remain in the scheme, contributions of 8% will be insufficient to provide an adequate retirement. In fact the PPI suggest that of the people automatically enrolled, 50% will fail to build up sufficient cash to provide an income of at least two thirds of their pre-retirement pay.
The PPI’s report suggested the Government look at ways of incentivising people to save for retirement, including offering more tax-reliefs. However, even this may not be enough, with the PPI saying: “Some form of compulsion by making saving into a pension mandatory may need to be considered.”
The PPI’s report comes in the same week that figures from Scottish Widows show just 45% of people are making adequate provision for their retirement by saving at least 15% of their salary towards retirement. The report also highlighted a shocking gender gap, with just 40% of women saving enough for retirement, compared to 49% of men.
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