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ePolitix.com Stakeholders comment on the publication of the Department for Work and Pensions report, Saving for Retirement: Implications of Pensions Reforms on Financial Incentives to Save for Retirement.
Stakeholder Response: Association of British Insurers
Maggie Craig, the ABI's director of Life and Savings, said: "The ABI has always said that saving makes sense. This report endorses the message that for most people, their workplace pension is the right choice.
"Joining your workplace scheme makes sense because you get free money from your employer and the government that you would otherwise not receive, and most importantly because it will bring you a higher standard of living in retirement. The government should build on this work by ensuring that the public is aware of the benefits of saving and able to make informed decisions about it.
"The ABI's own research has shown that almost half of the working population, some 13 million people, are not saving enough for retirement, and that almost 75 per cent of people believe that the benefits of saving have fallen in the last year. The government's new study should help to improve confidence in long-term saving by illustrating clearly that it makes financial sense.
"In 2012, saving will be revolutionised by the new system of automatic enrolment into workplace pensions. But right now, almost five million people could be benefiting from free money from their employer and the government, yet they haven't joined their workplace pension. The government has a great opportunity to make sure that these people, and others who start working between now and 2012, can gain the benefits of pension saving, by allowing willing employers to use automatic enrolment as soon as possible. This report shows that saving pays – we urge the government to make it easier for people to reap the benefits of saving now."
Stakeholder Response: Age Concern
Gordon Lishman, director general of Age Concern, said: "This welcome report clearly shows that, although there have been concerns about the interaction between pensions and means-tested benefits, the vast majority of people should benefit from saving after the 2012 reforms. The report's detailed and informative analysis provides additional support for auto-enrolment and the introduction of personal accounts, which should help many more people to save for their retirement.
"It is absolutely right that people should be given the option to opt-out of personal accounts if they decide that's best for them. But to help people make an informed decision based on their individual circumstances and needs, the government must ensure that clear, objective information and personalised support is readily available."
Stakeholder Response: Chartered Insurance Institute
A CII spokesperson told ePolitix.com:
"The sentiment of the report – advocating saving for the future through a pension to make your money work harder - is eminently sensible. However pensions should not bee seen in isolation and instead taken in the wider context of a savings society. We need people to get into the habit of saving – and not just for a rainy day. Saving needs to be sustained and long term – there are a number of mechanisms including ISAs and pensions. Underpinning the creation of a savings culture is the education of the public about savings. Research projects undertaken by the CII have shown a huge gulf between people's expectations in terms of returns on their savings and what the savings actually yield."
Stakeholder Response: Standard Life
Today's much awaited DWP study into the effects of means-testing on the decision to save fails to make it clear that people who save will be better off. The study highlights that 95 per cent of savers will see a return greater than their own personal contributions, but this is only part of the story. For example, it assumes that savers can afford to 'lose' the benefit of their employer contributions.
What the study fails to acknowledge is that many employers plan to pass the cost of the employer contribution to the employee, through lower wage rises, or wage freezes. Under tough economic conditions, employers will have little choice but to manage their costs in this way, otherwise they risk going out of business altogether. Where employees end up paying the whole 8 per cent, the advantages from saving are less clear, particularly for those in high risk groups such as older workers, and those receiving housing and council tax benefits.
The government is right that the means-tested State Pension Credit has kept many pensioners above the poverty line. Up until automatic enrolment into pensions begins to deliver reasonable incomes, means-testing will still be necessary to keep some pensioners out of poverty.
But, in the longer-term, if people do save for retirement, as a result of automatic enrolment into a good pension scheme, then they will have no need to claim means-tested benefits. If the government continues to signal that generous means-tested benefits will be available for all, then a significant number of people will fail to save.
John Lawson, head of pension's policy at Standard Life said: "I acknowledge that means-tested benefits were and still are necessary to keep pensioners above the poverty line. But continuing to signal that future pensioners will be bailed out in the same way creates moral hazard amongst today's workers, meaning that many who should save will not.
"The truth is that the next generation will be unable to afford the taxes to support the same level of generous means-tested benefits when the baby boomers retire and a less numerous generation replaces them in the workplace. The government should signal now that means-tested benefits will be scaled back and that it expects current workers to save for their own future. As things stand, the message is too vague - the government needs to be clearer to people what they should expect from the state when they retire."
Dods Parliamentary Communications Ltd
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