Compulsory pensions for all may be needed to defuse a growing retirement timebomb, claims a think tank advising government ministers.
The Pensions Policy Institute (PPI) says that even the recently instigated auto enrollment of workers in pension schemes will not be enough to give them a retirement income equal to two thirds of their salary.
Shortfalls
The institute claim millions of people are not saving enough and will face shortfalls in their old age. Average earners who start saving at 22 only have a 50-50 chance of making themselves an adequate retirement income.
The government admitted earlier this year that as many as 12 million people were ‘under saving’ for their retirement.
Unlikely
The institute’s research has shown that though auto-enrolment means more than a million employees have joined pension schemes and are now saving, they are still unlikely to save enough to live comfortably in their retirement.
In their report to ministers, the think tank says the government should investigate the possibility of providing more tax relief to incentivise people to save more or bring in some kind of ‘auto escalation’ where employees automatically put a proportion of any pay rise into their pension ‘pot’.
Uncertain
Chris Curry, PPI’s executive director, says: “This analysis shows that the outcomes from being automatically enrolled into a defined contribution workplace pension are highly uncertain. Some form of compulsion by making savings into a pension compulsory may need to be considered.
“While we are not recommending such a radical step now, new options must be considered,” he adds.
Crisis
Pension fund manager and PPI governor Tom McPhail points out that pension returns in general have been hit by the credit crisis and low annuity rates.
He says: “Unless we take concerted action, Britain is facing a savings catastrophe. Over the next 10 years we have to get everyone into a pension and then we have to get them saving enough.”
Former government pensions advisor Ros Altmann says: “We are facing a problem at the moment where if we don’t change the way we think we will have millions of pensioners living in poverty – and this is before you even take into account that no-one is saving for care in their old age.”
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