Call to make pensions 'compulsory'

Call to make pensions 'compulsory'

%VIRTUAL-SkimlinksPromo%People should be forced to put money into a pension in the same way that they have to pay taxes, according to a think-tank.

Policy Exchange said that a "help to save" scheme should be set up, which would remove people's ability to opt out of the workplace pension scheme they are placed in under the Government's landmark reforms to boost retirement saving as people live for longer.
Automatic enrolment into pensions was launched in autumn 2012. To date, a lower-than-expected rate of one in 10 employees are opting out once they have been placed into a pension scheme, but Policy Exchange said this level may rise as smaller firms are brought into the initiative.

The proposed "help to save" scheme would also see savers' contributions increase over time as their incomes rise.

Ideally, a 12% contribution rate should be targeted over the next five years rather than the 8% rate in operation, the report said.

The 8% rate is made up of 4% personal contributions, 3% company contributions and 1% from the Government in the form of a tax credit, but the report said that instead, the rate should be comprised of 6% from employees, 4.5% from companies and 1.5% from government.

The paper said that these measures would help to defuse a "pensions time bomb".

It said: "For those who argue that compulsion is not normal in the UK we would point out that tax, national insurance contributions and education are all compulsory.

"A failure to save sufficient funds for your retirement risks the state (and therefore other taxpayers) having to pick up the bill."

According to official estimates, the number of people aged over 65 is projected to increase from 17% of the UK population to 24% between 2012 and 2050.

The report warned that 11 million people are at risk of entering "pensioner poverty" when they retire.
This is the number of people estimated to be facing inadequate retirement incomes.

The report said: "The gap between where we are and where we need to be is huge."

It suggested that someone earning the average wage of £27,000 would 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. The paper said that an average earner would need a pot of £240,000.

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James Barty, author of the report, said: "People are not saving enough for their retirement. This is putting an intolerable burden on the state which needs to be addressed sooner rather than later.

"With an ageing population, 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."

Ros Altmann, an independent pensions expert and former government adviser, said action is needed to avoid increasing numbers of older people having to live on inadequate retirement incomes.

She 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."

A Department for Work and Pensions spokeswoman said: "Over 2.5 million more people have already started saving in a pension with automatic enrolment, and this could reach nine million by 2018.

"With 90% so far choosing to stay in, people clearly value the chance to save and get a contribution from their employer.

"Pension saving is not right for everyone, however, so they have the right to leave pension saving at any time.

"If they do leave, they will be enrolled again every three years so they can think again about whether it is right for them."

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Call to make pensions 'compulsory'

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

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