Do you think it should be compulsory to pay into a pension? 2


Pension Scheme

A government think thank, Policy Exchange, have urged the government to make it compulsory that people save for their retirement. Their proposal the ‘Help to Save’ Scheme is aimed at avoiding 11 million people ending up in ‘Pension Poverty’. In a BBC article….

James Barty, author of the report, said the lack of people saving for their retirement was putting an “intolerable burden on the state” which “needs to be addressed sooner rather than later”.

He said: “With an ageing population, putting money aside for later life should be seen in the same context as National Insurance contributions, taxes and even education – an obligation that falls on everyone in society.

“‘Help to Save’ will prevent the state from having to pick up the tab for people who haven’t put aside enough money for later life.”

Under the plans, the opt-out in the Government’s auto-enrolment scheme would be removed making it obligatory for people to save for their retirement

Individual pension contributions would also increase as incomes rise over time.

According to the report, someone earning the average wage – £27,000 – will need to save over six and a half times more than they currently do to generate the Government’s recommended retirement income of £16,200.

The average pension pot is estimated to be just £36,800, which on current annuity rates is enough to generate a retirement income of £1,340.

The paper said that an average earner would need a pot of £240,000, assuming they receive the full single tier pension.

Are you saving enough for your retirement? should saving be compulsory?

steve@bicknells.net

 

2 comments

  1. Steve, good parting question and we’ll venture an answer from an economic / philosophical point of view. 

    …but first, a health warning:

    We approach life from a freedom and free choice perspective. We only generate options as ideas and nothing within the text or context we are about to state should be perceived or construed to be investment, tax, legal or professional advice.  It is merely an opinion:

    Savings and therefore a pension, as a subset of overall savings, is only one way to add to our overall wealth. There are obviously many other vehicles or ‘vessels of wealth and savings’ we can utilse. Deferring future benefits and hence cash flows via a regulated pension plan is one of our options. It is regulated, but not guaranteed; and it has certain tax advantages too. 

    As an option (and not one we recommend necessarily) a person could invest in a home in an affluent area, hope for significant capital appreciation over time, whilst enjoying the benefits of the property and then sell and realise a capital gain close to the end of retirement.  Then downsize and live happily in retirement on the proceeds. A choice, no less, with significant risk attached to it.  (It is unregulated, unfettered and relatively uncomplicated)

    Herein lies the problem. If that was an  individual’s choice, forcing him or her into a pension, might mean they don’t get to enjoy a great asset and lose control (slightly) of their own destiny; because an anonymous ”pension fund” manager controlled the eventual outcome. Choice or ‘reduced choice’?

    We still have options, so rather than force an outcome nobody wants, let us rather educate, inform and allow free(dom) of choice. 

    We are happy to continue the conversation or have any rebuttals to our one (of many other options) suggested.       

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