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Can they force us to save for our retirement? By Sarah Pennells
After years of debate - and some argument - the Government has finally revealed how it wants to get more people to save. The estimated 13 million people not saving enough for their retirement will either have to pay more into their pension, The recent pensions White Paper was seen as a step in the right direction, mainly because people who have not joined their employer's pension will be automatically enrolled in a national pension scheme (with the right to opt out again). It's true that one of the reasons why so many people do not join their company pension scheme is inertia. Who hasn't been tempted to put off until tomorrow what they don't have to do today? Soon it will be joining a pension scheme, rather than not doing so, that will be the lazy option. Paying in under the new plan
Under the Government's plans, employers will have to pay in 3% of the worker's salary; employees will pay 4%, with an additional 1% coming from the Government. That's not a bad start. It won't pay for cruises and non-stop golfing holidays, but it should mean today's 20 or 30-year-olds get further than an annual trip to Margate or Blackpool when they retire. But the Government has already had one attempt at encouraging more people to pay into a pension. Back in 2001, stakeholder pensions were introduced and under the rules, all employers with five or more workers had to provide one. But what they didn't have to do was to make any payments into it. So, a number of employers closed down their existing pension scheme to new members and started a stakeholder in its place: this time paying in less or nothing at all. The result - lots of pension schemes up and running with little or no employer contribution and, funnily enough, not many members either. Stick and carrot
The proposed national pension scheme should bypass that problem by forcing employers to contribute and by pushing employees into it. But as the Government knows from its child trust fund initiative, free money alone is not enough. Latest figures show that many parents have not cashed their £250 vouchers: money that the Government sends them without them having to even ask for it. With the national pension scheme, doing nothing will mean that an employee will build up a pension. But if the Government wants us to embrace the idea of saving for retirement, it may need to do quite a bit more.
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