Call for workplace pensions to be made compulsory

The choice to opt out of the Government's auto-enrolment scheme should be axed, a think tank has proposed. The Policy Exchange has made the proposal as it warned 11 million people are at risk of entering 'pensioner poverty' when they retire.It said that building up a pension pot should be an obligation equivalent to paying taxes for public services.The organisation has put forward a 'Help to Save' scheme, which includes scrapping the option for employees to duck out of auto-enrolment.Only 1 in 10 employees have opted out so far but The Policy Exchange believes this level may rise as smaller firms are incorporated into the scheme.The organisation wants an automatic escalation in the auto-enrolment system where a proportion of any increase in pay has to be allocated to a pension contribution until pension contributions reach a higher rate.{desktop}{/desktop}{mobile}{/mobile}It warns that even with 8% contributions flowing into a pension on a regular basis people will not be able to save enough for their retirement.Over 40 years someone earning £27,000 would likely be able to save around 55% of what they need to generate the target retirement income, the think tank calculated.A £27,000 salary employee will need to save over six and a half times more than they currently do to generate the Government's recommended retirement income of £16,200.The average pension pot is estimated to be just £36,800, which on current annuity rates is enough to generate a retirement income of £1,340.James Barty, author of the report, said: "Putting money aside for later life should be seen in the same context as National Insurance contributions, taxes and even education – an obligation that falls on everyone in society."Help to Save will prevent the state from having to pick up the tab for people who haven't put aside enough money for later life."Pensions expert and former government advisor Dr Ros Altmann said: "Ensuring that people contribute more than the auto-enrolment minimum is certainly important to deliver better pensions and using pay rises to fund higher contribution levels is the best approach."Alan Brown, senior adviser at Schroders Investment Management, said: "Underfunded pensions are a ticking time bomb and ignoring the problem will not make it go away."

Call for workplace pensions to be made compulsory

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