The Government needs to conduct further research into whether people on benefits would benefit by auto-enrolling in personal accounts, the Pensions Policy Institute (PPI) says.
The PPI says the Government's work programme will need to shed light on the numbers of people who face the risk of being auto-enrolled into pensions savings when it may not be suitable for them.
Another area of uncertainty, according to the PPI, is the possible effectiveness of generic advice at helping individuals make the right decision about staying in or opting out of saving in a pension.
The PPI says: “People will need clear information to help them decide whether they should stay in or opt out of saving.
"The question is whether information alone can be clear enough, or whether other policy options need to be considered."
It adds: "If pension saving is not suitable for all, this does not mean that individuals should not be auto enrolled.
"PPI analysis suggests that if broad groups of people were excluded from auto enrolment, such as today’s older people or people on low earnings, this would risk excluding some people who could benefit from saving in a pension.”
It estimates 20% of pensioner households will face high marginal deduction rates (MDRs) in 2050, which is a similar figure to 2005.
The MDR is the proportion of a small additional increase in private pension income that would be offset by lower entitlements to means-tested benefits. For example, an MDR of 40% means that, for an extra £1 a week of pension income, the individual would lose 40p a week in means-tested benefits, so gain by 60p overall.
PPI research also shows high risk savers, those likely to rent in retirement and prove eligible for housing benefit, will see a 1.6% rate of return from investing in personal accounts.
Meanwhile, medium risk savers, people with low earnings or broken career patterns, will probably see a 5.2% return. Low risk savers, those in their 20s in 2012, will see a 5.8% return.
To comment on this story contact:
Tel: 020 7034 2679
E-mail: [email protected]
Caring for children and elderly relatives
Similar to June 2007
Square Mile’s series of informal interviews
Fine reduced to £60,000
Two roles created