Today, everyone who joins the new national pension scheme is enrolled as their firm joins the scheme, but everyone also has the right to decide that they prefer jam today over jam tomorrow, and to say they’d rather not join.
They have to stay on top of this if they want to stay out – they get automatically enrolled again every three years – but it is still perfectly possible to choose to spend your own money as you want. You have to wonder how long it is going to stay that way.
Whenever I talk to people in government or at the big pensions firms about auto-enrollment, it is clear that in the end they expect the opt-out bit of the deal to disappear. And now a think tank – the Policy Exchange – has come out and actually said it.
Their report, which you can download, suggests that some 11 million people are “at risk of entering pensioner poverty when they retire.”
Their solution is a new ‘Help to Save’ scheme, which would “make it obligatory for people to save for their retirement by removing the opt-out in the existing auto-enrolment scheme, while also increasing individual contributions to pensions as their incomes rise over time.”
So, any rise in your pay would come with a compulsory rise in your pension contributions with the target savings rate being not 8% of your income as it is at the moment, but 12%. More ‘Force-to-Save’ than ‘Help-to-Save’ perhaps.
On one level this makes total sense and it is a system used in many other countries such as Australia. But you might say that (while it is hardly leaving our pensioners lounging in the lap of luxury), we already have a compulsory opt-in to a pensions system – we are absolutely obliged to pay endless income tax to cover our state pensions.
Given that the minimum income a pensioner can sink to in the UK is about £7,500 a year (if you are on pension credits), you would think that would be enough on the compulsion front. Anything else is really just another form of financial repression – a way in which we are forced by the government to use our money as they want rather than as we want.
It would also provide our debt ridden state with a horrible temptation. How long do you reckon it would be before that huge pile of compulsory savings was mobilised to invest in government debt? (You know, to keep it safe.)
• While I’m not keen on the ‘force to save’ bit, the report does contain some interesting ideas on how we can improve the way we can draw down the savings we do have when we retire. It is worth reading for that bit.