The government’s proposals to solve the pensions time bomb could lead to a ‘pensions crisis’ according to new research by Deloitte, co-sponsored by Scottish Widows.
According to the research, the key problem is the National Pensions Savings Scheme’s personal account – not only is it expected that many people will opt out but in addition it is not likely to help women or the self-employed.
To make matters worse, 65 per cent of companies say that although they will retain current contributions for existing staff when the new arrangements come into force in 2012, they will offer new employees terms more in line with the personal accounts minimum of 3 per cent employer and 5 per cent employee contributions.
Only 23 per cent said they were likely to retain their current contribution rates for new and existing employees after 2012.
Although most employees agree with the principles behind the pensions white paper, in practice 58 per cent said they would be ‘angry’ if they were forced to work after 65.
In addition, most felt there should be some obligation on employers to contribute towards pensions and 34 per cent said they could not realistically afford to put anything aside on a monthly basis.
Ian Naismith, head of pensions market development, Scottish Widows, said: “There is widespread agreement that employers have a vital role to play in helping their staff provide for their retirement.
“It is very worrying that companies who already have generous pension arrangements are likely to reduce their contributions once personal accounts are introduced, and the government needs to make it as easy and worthwhile as possible for them to retain their existing arrangements.
“All of our research points to the importance of financial education if consumer expectations are to become aligned with gGovernment thinking by 2012.
“You can lead a horse to water but you can’t make him drink. It is clear that working for just a few years longer than you might be planning to can make a huge difference to retirement income, but we need to see a major shift in consumer attitudes if they are to enjoy the benefits of that.”
But the major concern is the data from the Pensions Policy Institute (PPI) which indicates that women using a personal account will, on average, receive only 69 per cent of the pension a man will receive.
The difference arises from lower average earnings and more expensive annuity rates. Women are also much more likely than men to take career breaks, or work part-time, which further hits potential retirement income.
For the self-employed, the picture is likely to be even worse following changes to means testing. Those not entitled to the state second pension will lose £1 of benefits for every £1 of income from a significant part of their pension. That could lead to people being only £2 a week better off than if they had not saved at all.
Niki Cleal, Director of the PPI, said: “The work the PPI has undertaken for Scottish Widows shows the significant difference working later can make to retirement income, and the potential impact the new personal accounts could have on retirement income for women and the self-employed.
“This work is an important contribution that will help the government understand the implications of the new personal accounts for different groups of people and highlights the need for further research in this area.”
Ian Naismith added: “The government’s reforms mean that many women will get a much better deal from state pensions than at present, but despite the introduction of personal accounts they will continue to lose out on private provision.
“The position of the self-employed is a particular concern. Not only do they lose out on state second pensions and employer contributions, but the changes to means-tested benefits work against them and mean that much of their incentive to save for retirement is lost.”