Mellon has cautioned any consideration for pensions compulsion could lead to contributions being set at too low a rate in order to accommodate affordability concerns the entire UK population.
In response to findings of the Pension Commission, the Human Resources & Investor Solutions business of Mellon suggests individuals and employers might prefer to satisfy only the minimum requirements towards retirement.
The firm predicts compulsion may also mean people having to sacrifice their savings for other purposes in order to satisfy a compulsory pension requirement.
Mellon points also to potential problems arising through the introduction of compelling contributions into privately-managed arrangements.
The firm believes current initiatives to get people to save have failed as a result of the complex nature of the system, along with a lack of sufficient tax incentives, "the uncertainties caused by the high level of means-tested state provision and the frequency of changes to state benefits"’.
A recent Mellon survey earlier highlighted by IFAonline found as many as 68% of employers to be in favour of compulsion of some kind.
However, Mellon warns an added layer of bureaucracy could increase the costs for employers providing pension contribution for their workers.
Ian Ellis, senior consulting actuary at Mellon says: “We are concerned compulsion may be seen as a ‘quick fix’ to the low savings problem, but without considering its full implications. This would be a major step, with implications far beyond the immediate area of pensions.”IFAonline
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