The Workplace Retirement Income Commission (WRIC) review, set up by the National Association of Pension Funds and led by Lord McFall, warned that up to 23 million workers are not saving enough for retirement and are taking on too much of the financial risk for their pensions.
As many as 14 million people do not have a workplace pension. While 10 million people are set to be auto-enrolled into pension schemes next year, WRIC said more reforms were urgently needed to ensure people make an adequate level of savings.
Common in the private sector, defined contribution pensions, were singled out as an area of particular concern for WRIC. This is due to workers having to take on all the financial risk of the stock market investments, despite many being confused by the investment choices available.
The report was also critical of pension fees and high charges which can eat into workers savings.
Lord McFall urged employers to stop being “scared” about offering pensions advice and become “re-engaged” through tax incentives and the creation of ‘safe harbours’ that allow them to discuss pensions in more depth without the fear of legal reprisals.
The report also urged the government to consider options for increasing minimum pension contributions from 2017,to ensure people have built up a sufficient pension pot for retirement.
Lord McFall, WRIC chairman, said: “Sadly, millions of people are being left to navigate a pensions minefield that would puzzle Einstein. We’re seeing less saving and lower trust in pensions, and that’s a vicious cycle that cannot continue.
Neil Carberry, CBI director for employment, said: “The way to drive a change in the savings culture is for employers to have more freedom to design schemes that work for them and their employees. That means simplifying rules and fostering greater employee engagement with pensions, not top-down solutions.”
“Further increases in the minimum contribution would put employers and employees under even greater financial pressure, and may drive people away from pension saving altogether,” he added.
The employer and employee rate will have to increase, he said, but people are caught in a “perfect storm” of plunging profits for firms and plunging pay at the moment.
“If the government suddenly expects employers and employees to pay more, then they need to do something to encourage that. For instance, increasing the personal allowance again – perhaps accelerating it from £10,000 to £12,000. People would have more money and be able to contribute more. Government could also bring down corporation tax or national insurance charges; then extra money could be used by employers to fund staff pensions.”
