UK - Personal Accounts may not increase pension saving to the extent the government hopes as employers opt out of current schemes in response to the reforms, according to a report from the Pensions Policy Institute (PPI).
Under the reforms, employers will, for the first time, be required to auto-enrol eligible employees into a work-based pension scheme or Personal Account, and to contribute 3% of earnings between £5,000 and £33,000 if workers do not opt out.
The PPI said, while the reforms were likely to increase the number of people saving in a pension, the total amount saved in private pensions could be impacted if employers chose to opt out of current schemes when personal accounts are introduced.
Niki Cleal, director of the PPI, said: “Some employers have said they will close their existing schemes or reduce their pension contributions as a result of the reforms.
“If employers act in line with a survey of their likely responses, the reforms could increase annual total pension contributions by around £10bn initially, but this could be only around £2.5bn above the level without reform by 2050.”
David Cule, principal at Punter Southall, said the government was faced with a huge pension liability as people’s life expectancy increased, and defined benefit schemes declined.
He said it was likely there would be further reforms by government’s going forward to deal with the issue. He said: “Private sector pension liabilities will be minimal but public sector liabilities potentially could be huge.”
Meanwhile, Nigel Peaple, director of policy at the NAPF, told delegates at the Professional Pensions Show, that personal accounts would only work if workers understood the options facing them in relation to auto-enrolment.
He added that equally important was the Government’s commitment to reduce the regulatory burden on today’s pensions.
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.
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