Save More Or Die In Poverty, Warns Think-Tank

Retirement savers should be forced to save six times more money if they don’t want to live in poverty when they give up work, claims a new report.

Most savers manage to set aside a retirement pot of an average £36,800, but they need at least £240,000 to see out their later years comfortably, says think tank Policy Exchange.

Forced saving is the only way to make this happen, says the group.

And they are urging the government to make pension saving compulsory, like paying tax.

The first step is scrapping opt-out rules on automatic enrolment into workplace pensions to make individuals obliged to make adequate provision for their old age and to remove a massive financial burden for looking after the elderly from the state.

Everyone should save more

“Pensions put a huge strain on public finances which needs sorting out sooner rather than later,” said James Barty, who wrote the report for the think tank.

“As the number of elderly in the population increases, saving for later life should be considered as something everyone must do, like paying tax and national insurance is seen now. Retirement saving should become a personal obligation that falls on everyone.”

The government calculates that an average annual income of £16,200 is needed in retirement, but current saving levels only return around £1,340.

Although Policy Exchange supports auto enrolment for workers, the group criticises the scheme for letting workers opt-out and to make low contributions.

The think tank explains auto enrolment requires workers to put a minimum 8% of their earnings into the scheme, but this will leave them with just over half the money (55%) considered necessary for retirement.

Annuity tax breaks

“Ignoring underfunded pensions is no solution to the problem and one needs to be found,” says the report.

“We must find a way to make effective retirement savings that is fair to everyone.”

Some ideas from the think-tank report to improve retirement incomes include the government issuing annuity bonds that compete against those offered by financial firms.

The aim is to cut costs for investors and clarify interest rates – and to hopefully pull the commercial market in line with annuities issued by the government.

Another suggestion is to give tax breaks to pensioners so they can invest more money outside annuities to provide a better retirement income.

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