Pension report introduces incentives to save for retirement

06 February 2009 / by Rachael Stiles
The Department of Work and Pensions (DWP) has issued an extensive report on encouraging people to save more for the future in order to top up their state pension when the time comes to retire.

The reforms outlined in the DWP report aim to "increase the number of people saving for retirement", and intends to do this by introducing automatic enrolment into workplace pension schemes from 2012, offering more incentives by mandating employer contributions, and enhancing State Pensions.

"Ensuring people have good financial incentives to save in this way is an important objective of the reforms, though of course it has to be balanced against other objectives," the report stipulated, "such as the need to protect the poorest from poverty."

The report has received a mixed response from the pension sector and other groups. Gordon Lishman, director general of Age Concern, welcomed the report, saying that "the vast majority of people should benefit from saving after the 2012 reforms." He also lauded the support for auto-enrolment and the introduction of personal accounts, "which should help many more people to save for their retirement", he said.

The Pension Policy Institute (PPI) was more reserved in its praise of the report, admitting that it does serve to move the debate forward on incentives to save for the future, but PPI Director Niki Cleal, said that it also needs "careful interpretation."

"The report confirms that for most people the interaction between auto enrolment and means-tested benefits need not be a barrier to saving. However, it also shows that a minority of people will not get back the value of their own contributions after taking account of inflation due to the interaction of their saving with means-tested benefits." he said.

"The Government's conclusion that most people can expect to be better off in retirement by saving, with the majority getting back more than double what they save needs careful interpretation. This finding is based on a specific set of assumptions which may, or may not, transpire in the real world. All individuals who save in money purchase pension schemes are exposed to the risk that the value of their pension pot can go down as well as up."

Gareth Evans, head of corporate affairs at Royal London/ Scottish Life also has his doubts about the reports conclusions. "Although the Government pledged to deal with the issue of means-testing once and for all in this report, we believe that the DWP has avoided the real problem by claiming that "virtually everyone" will be better off by being auto-enrolled into personal accounts." he said. "We still believe that means-testing is a huge issue for many savers - and one which must not be ignored."

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