Workers not saving enough for retirement
Private sector workers who sign up to auto enrolment will not be saving enough money to secure a decent retirement, a report has warned.
The minimum contribution of 8% for employees on the scheme needs to be increased if employees are to retire in comfort.
The report from the Treasury's Workplace Retirement Income Commission (WRIC) criticises the auto enrolment scheme and says private sector pensions are "complex, costly and inefficient".
It warns that 14 million out of 23 million private sector workers are not currently saving into a workplace pension and that the new auto enrolment system - due to be implemented from 2012 - will not be enough to rectify this shortfall.
From next year, employees will be automatically enrolled into a pension scheme unless they choose to opt out.
The review says the government should increase the minimum amount contributed by workers in the auto enrolment scheme as the proposed 8% minimum contribution will not be sufficient enough for most people.
The report looked across the private sector and says the UK has too many small, inefficient pension schemes and new pension structures need to allow for bigger, low-cost schemes to operate.
Charges employees have to pay should be capped and too many people are being short-changed by annuities, which need to be more flexible to meet changing spending patterns in old age.
Lord McFall, the former WRIC chairman and author of the report, says: "People need to get more bang for their buck, or they're not going to bother with a pension. Instead, they'll end up spending today, ignoring tomorrow, and scraping by in poverty on the state pension.
"We cannot stand by and let that happen. The complacency of many in the pensions industry is alarming," he adds.
Neil Carberry, spokesperson for the Confederation of the British Industry, says this report rightly identifies the need to do more to boost savings for retirement, and makes some helpful recommendations about how to build a culture of saving in the UK.
But he says the commission's proposal to consider increasing the minimum compulsory pension contribution is not the right answer.
"The current plan to introduce a floor of 8% saving from next year remains the best way to ensure more people who can afford to save do so.
"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," he adds.