A leading think tank has called for a compulsory workplace pension scheme to be implemented across the UK where employees would be required to put a portion of their income into their pension pot each month.
The Policy Exchange identified that creating a meaningful pension ìshould be an obligation equivalent to paying taxes for public servicesí, citing that a rapidly aging population could mean the government spending millions in the future trying to subsidise the retirement of workers in the future.
Recent estimates given about the current pensionís people are set to receive shockingly suggested that the average workers would have just £37,000 available to them for when they retire, equating to a minute £1,340 a year.
Policy Exchange suggested a new initiative, the Help to Save scheme, that would see workplaces moving all new workers onto the scheme and clearly identifying to prospective employeeís that a portion of their salary would contribute towards their final pension pot.
The Policy Exchange hopes that the move will see workers move closer to the £240,000 pension pot that has been identified as the amount needed to live a financially comfortable and stable retirement, and has forecasted that it could help over 10 million people be better prepared in the future.
The new scheme will be instigated slowly over the next few years, with 2 million individuals already signed up for it and many more expected.
However, unlike the Policy Exchangeís proposals, workers will be able to leave the scheme if they wish, with over 10% of those who previously signed having left in recent times.
The PE has argued that compulsory enrolment without an opt-out clause is the bare minimum needed for people to be able to afford retirement, citing that even if 8% of their annual income was placed into a pension pot that it would not be sufficient to uphold people financially in their old age. They have no called for the minimum contribution to rise to 12% from the current 8%, and the implementation of a non opt out clause as well.
They did however concede that people could opt out if they could amply display that they had enough money to be financially prepared for retirement.
James Barty, author of the report, said: “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.”
Despite the Policy Exchangeís forecasts, the Department for Work Pensions has said that an opt-out clause is necessary in order for people to have the power of flexibility should they fall upon short term financial difficulties.
They praised the initiative however and said that it is a step in the right direction to ensuring a more stable and secure future for workers in the UK.
“If you’re behind on your mortgage, rent, credit card or other debt payments, a pension might not be the right step at the moment. It’s something you should come back to once your debts are more under control”, said Steve Webb, Pension Minister in the coalition.
He added: “It is not inevitable that opt-out rates will soar this year. We watch it closely and we are not seeing anything different month by month.”
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