A think-tank is saying that employees may have to be forced into saving for their pensions if the latest automatic enrolment schemes fail to generate enough members.
The Social Market Foundation says it has examined what is needed for people to retire in 2032, taking into account that people are living longer and that people have higher levels of debt earlier in life.
They say forcing people into saving into a pension scheme is a ‘logical step’ if the economy continues to be sluggish or if people don’t save enough for their later years.
In a report, the think tank says that in future governments may have to help people with their finances and with things like childcare costs and offering short term loans when they are needed most.
The report follows the government’s rolling out of its landmark scheme which will see workers automatically enrolled into their workplace pension schemes.
Savers can’t be trusted
Eventually there will be 10 million workers paying into their own pensions.
But workers are allowed to opt out of the schemes and the government is looking at ways of making them re-enrol or at least to save for their future retirement.
The situation is likely to get worse since by 2020 more than half of the population will be aged over 50.
And with declining rates of participation in schemes there is a potential pensions crisis looming.
In its report ‘Jam Tomorrow’, the think tank says the state cannot rely on people saving enough to look after themselves.
The report’s author Dr Nigel Keohane said: “Future governments will not be able to afford the consequences of what is currently chronic under-saving in British households.
“As a result the government will have to nudge, prod or regulate people into saving for their retirement.
Risky market
“This means looking at policies such as compulsory pension saving or low-risk pension products.”
He added said that the long-term pressure on public finances mean it is unlikely that many people will receive state support when they retire.
Dr Keohane: said: “And if auto-enrolment does not substantially boost levels of engagement with pension saving then compulsion may emerge as the next logical step for savings policy.”
However, the think tank says auto-enrolments shouldn’t divert people from saving money for emergencies or from paying off their debts.
And some effort must be made too to help people who are put off from investing in a pension in what they see is a risky market.
The think tank is also pointing at the amount tax relief given to increasing numbers of high rate taxpayers will need to be revaluated because it will be too expensive.
