Sarah Mortimer London
BRITAIN may soon have to force workers to start saving for retirement to cut a soaring pensions bill set to reach £120 billion (R1.67 trillion) in 20 years.
The government wants people to pay into their own pension pots rather than rely on the state. But many employees have been reluctant to do this.
A scheme, introduced in October last year, automatically enrols staff into a company or national pension plan, but gives them a choice to opt out.
If large numbers of workers pull out, the government may decide to make membership compulsory in a Pension Review due in 2017.
“If opt-out rates are 50 percent or more, it is possible the government will make pension saving mandatory,” Paul Gilbody at BlackRock Investment Management said in a report.
The pension legislation is an attempt to tackle the UK’s ballooning pensions bill, set to hit 8.5 percent of economic output by 2060, from 6.9 percent now.
Less than half of employees in Britain are putting money into a workplace pension scheme, the lowest proportion since records began in 1997, according to the Office of National Statistics.
Britain’s pension system ranks seventh out of 16 countries in a comparison of national schemes, according to data from consulting firm Mercer.
Its lowly ranking reflects an ageing population, low investment returns and large government debt.
The Department of Work and Pensions said it had no plans to introduce mandatory private pension saving, but it did need to compel millions more people to save.
The department said it expected 70 percent of people would stay in a workplace scheme and hoped to see 4.3 million savers in pension schemes by May 2015 and between 6 million and 9 million by 2018.
Under the current auto-enrolment system, both employee and employer contribute 1 percent of pay into a pension.
But this will increase to 5 percent from the employee and 3 percent from the employer by October 2018. Companies with more than 120 000 employees were required to start auto-enrolment for staff 22 years or older in the second half of last year. For small firms the deadline is July 2014. – Reuters