Incentives to save
Today DWP publishes detailed analysis (PDF 533KB) on people’s financial incentives to save for retirement.
This shows that the large majority of people can expect a good payback by saving in personal accounts, justifying our approach to help people save for their retirement by automatically enrolling people into personal accounts.
The goal of our policy is to give those who work or care throughout their lives confidence they can save for their retirement. The analysis indicates they can have that confidence thanks to a more generous state pension, a compulsory employer contribution, and lower charges.
Low earners on £15,000, who currently may only see low payback on their savings, or may not be saving at all, could now expect to receive over £2.50 in retirement for every £1 saved in working life, and the scenario for a median earner is just as good. Even a part-time worker earning £6,000 could now receive almost £2 in retirement – getting out double what they put in.
Of course payback is dependent on numerous factors such as earnings during working life, state entitlement, the age at which people start saving, and government policy in the future. There will always be individuals who will rightly decide not to save – for example, if they want to pay off debt. But crucially, we cannot identify any significant groups of people who can expect negative returns and therefore should not be automatically enrolled.
Readers interested in this issue may also like to read the research produced by the Pensions Policy Institute, which shares a lot of this analysis. They use different criteria to decide whether people get good returns from saving, and identify some groups who would need to think carefully about saving – for example those who could be on housing benefit in retirement, or the self employed.
But I think it’s fair to say we reach the same conclusion – that automatic enrolment is justified and that the policy response to groups that risk getting lower but still positive returns is to provide them with good information. Our forthcoming White Paper on personal accounts will look at this issue and it will be an important area for further work after that publication.
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This entry was posted on Thursday, November 30th, 2006 at 5:13 PM by James Purnell and categorized in General posts.
Alan Williamson wrote:
With the review of the Pensions Act it is time to stop the discrimination against those of us who plan to take our retirement overseas.
I have paid my National Insurance contributions for over 40 years and also paid Income Tax over that time, only to be told that I will be penalised because I choose to retire overseas. There will be no increments in my pension after the inital allocation.
As I will be living overseas I will be less of an expense on the state, as I will not require the National Health system, or other Social Security services.
In view of this, surely I should get a bonus, rather than being discriminated against???
Yours faithfully
Alan Williamson
Posted on 06-Dec-06 at 12:12 pm | Permalink
Dave Allen wrote:
How disappointing, your reply from the despatch box on Thursday 7th Dec.
Such a serious debate, with excellent contributions, yet your summing up attempted, yet again, to turn it all into Government Spin.
Please start taking this crisis seriously.
When you say that you have explored all means of financial resources,still defend the £15billion costs,say that you have enormous sympathy and now blame the trustees for holding up wind ups. We all know the truth in these matters and if you are not more careful, you will be leaving yourself wide open to even further claims of misleading victims and Parliament.
Posted on 09-Dec-06 at 7:11 am | Permalink
Linda Keech wrote:
I shall be 60 on 26th January 2009. Without any further Voluntary contributions, I am forecast to have 23 qualifying years + 8 years Home Responsibilities Protection, meaning an expected 75% pension.
If I understand the proposals correctly, people retiring from April 2010 will only need 30 years for a 100% pension.
How can anyone believe it would be fair for me to get 25% less pension than someone who has fewer contribution years than I have?
I hope I haven’t understood it correctly because it would be clearly unfair.
Linda Keech
Posted on 12-Dec-06 at 4:59 pm | Permalink
Thomas Broadhurst wrote:
My wife and I reside in the Commonwealth Country of Australia and have had the same pension for the past 12 years. I too have paid full contributions all my working life, am not costing the Uk government anything in the way of infrastructure or health, but the pension is NOT index linked. Why? It would be if I did not reside in a Commonwealth Country. It is a travesty of justice to know the politicians can receive so much for so little, when I receive so little for so much.
Posted on 10-Mar-07 at 4:45 am | Permalink