Addressing the Chartered Institute for Securities & Investment (CISI) Financial Planning Annual Conference, Royal London director of policy Steve Webb called for a 'Save More Tomorrow' scheme to be put in place and legislated for in the UK.
As the former pensions minister explained, the schemes ensure that, when someone receives a pay rise, they pre-commit to placing a higher proportion of their earnings in their pension than they currently do. He said there was "very clear evidence" this type of scheme works, adding it was "very effective" in the US.
Webb also said the behavioural insight of Save More Tomorrow was an "obvious one" and called for the scheme to be legislated through an 'opt-out' approach, similar to auto enrolment.
"People are willing to be virtuous tomorrow but not today," Webb told the conference. "Ask me to be virtuous now and I won't do it. Ask me to commit now to be virtuous tomorrow and I will.
"So what we need is a Save More Tomorrow scheme in the UK. I would back it up by law so, unless you opt out, every time you get a pay rise you get more of your pay rise going into your pension."
Webb added it could remain on P60 records so, if or when people change jobs, they start from where they left off at their old job and continue to build up their pension contributions as they earn more money.
"If we do something like that, billions upon billions of pounds will be added to pension savings but, if we don't, there will be an awful lot of people who simply cannot afford to retire," he warned.
After calling for a ‘save more tomorrow' system to be put in place, Webb labelled the Lifetime ISA (LISA) a scheme for the "children of the wealthy" and questioned the government's decision to go ahead with its plans for the initiative.
He said that, as most people who are self-employed are over the age of 40 and LISAs cannot be opened by those over 40, the argument it gives pension savings flexibility to the self-employed is largely nullified. Webb also questioned the LISAs other aim - to help young people buy their first home.
He said: "If it's not really going to go to the self-employed, presumably it's trying to help hard-pressed young renters buy a house. But how many young, struggling renters do you know who have got £4,000 a year to save in a LISA? None of them.
"So who's this product actually for? It's for the children of the wealthy."
He also told delegates at the conference the Help to Buy ISA already exists to serve those who want to gather the money for a deposit to get on the housing ladder.
"I do query if the government is spending taxpayers' money the right way subsidising these accounts, which essentially - probably - top up those who are best able to get a foot on the housing ladder in the first place."
Phoenix Group will launch an ESG defined contribution (DC) default solution for pension fund clients of its Standard Life Assurance business and their scheme members.
Newton’s Curt Custard considers the investment outlook for 2021 and the implications for DC schemes
Master trusts’ investment strategies have grown and become more sophisticated over the last three years, but “growing pains” are hindering progress, according to the Defined Contribution Investment Forum (DCIF).
The technology to improve employees’ wellbeing is already here. But it is now in employers’ hands to make sure it is used to create successful corporate wellness programmes
More than half of BlackRock’s flagship UK defined contribution (DC) default fund’s assets will be invested in ESG strategies by June 2021.