What would make you save more into a pension? A survey from Scottish Widdows has found that 52% of us are not saving enough privately for the future, so governments and financial institutions are going to be asking how pension saving can be made more attractive.
Notwithstanding the recently announced “triple guarantee” that will make sure the state pension will rise in accordance with prices, earnings or by 2.5% per annum, it is still going to be a paltry sum to live on. Hundreds of thousands of pensioners rely on the pension credit to top up their income, but with the current squeeze on the Treasury, the government wants to transfer responsibility for funding British people’s retirement to themselves.
For UK employees in 2012, pension saving will not quite be compulsory. But on the other hand being enrolled in an automatic saving scheme that will continue unless and until you opt out of it will have the effect of shoehorning millions of would-be savers into the private pension system. Will this make the UK a nation of enthusiastic savers, or will these forced contributions be viewed as an extra tax to make up for the tiny state pension they will receive?
So far, most commentators on the forthcoming scheme have assumed that, far from promoting a culture of saving and showing the lower paid the route to personal finance enlightenment, the proposed system may not fit its purpose.
High initial fees may force employees to opt out of the scheme, without looking for an alternative place for their contributions. In fact, given that we are already half way through 2010, the “recovery” is unlikely to have delivered a feel good factor in the next eighteen months, so people may even decide that they cannot afford contributions, fees or not fees.
The government assumes that inertia will prevent people from getting around to opting out of the scheme. However, all it takes is a media campaign (by unions or by a private pension provider) highlighting how much the fees may cost to suggest the idea to disillusioned workers.