UK - The human resources and investor solutions business of Mellon (Mellon HR & IS) says compulsion could lead individuals and employers to use the required minimum contribution as their sole vehicle for retirement savings.
In its response to the first report of the Pensions Commission, Mellon said people could decide to satisfy only the minimum requirements without making further contributions, and lead to other forms of savings being diverted to meet the requirement.
The firm said this could be a “serious setback” as political considerations were likely to require that any compulsory contributions be set at a low rate.
Ian Ellis, senior consulting actuary at Mellon HR & IS, said: “We are concerned compulsion may be seen as a ‘quick fix’ to the low savings problem, but without considering its full implications. This would be a major step, with implications far beyond the immediate area of pensions. However, effective change is long overdue, and we believe with the right government support, employers and individuals can regain confidence to establish new long term arrangements.”
Mellon pointed to a number of disincentives, such as complexity, lack of sufficient tax incentives and uncertainties caused by the level of means-tested state provision and frequency of changes to state benefits as the reason for the decline in the level of savings under the present voluntary system.
Mellon warned an “extra layer of bureaucracy” would be a costly addition to employers’ provision of pensions for their employees.
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