State’s 8% pension benchmark ‘too low’

TWO-thirds of people want the Government to bring in mandatory pensions but experts say the Government’s proposals won’t be enough to fund a comfortable retirement.

According to Standard Life almost half of people surveyed think a mandatory pension scheme will mean pensions which are as good as or better than public sector pension.

However, it has warned that proposed saving levels are too low for comfortable retirement.

The Government recently announced a plan to introduce mandatory pensions savings for all employed, non-pension owning adults over 22, in or around the year 2014. It would likely mean saving 8% of their salaries a year.

Almost a million people or half the working population could expect to be enrolled in mandatory pensions if the proposed pension policy is implemented.

Head of pensions with Standard Life, Jim Connolly said: “What’s very clear and worrying is that those surveyed do not appear to understand that the mandatory pension scheme, as proposed is in the ha’penny place compared to public sector pensions. Private sector workers will need to save significantly more than 8% of their salaries per year to enjoy a comfortable retirement.”

Mr Connolly said he estimates that private sector pensioners will be almost three times worse off compared to public servants’ pensions, if savers adopt the minimum 8% annual contribution as the benchmark amount.

“In reality, a final salary pension that tens of thousands of public servants have is worth about 23% of their salary per year. That’s roughly (at current projected rates of investment returns) how much an employer would need to invest into a pension fund each year to produce the retirement income required,” he said.

Managing director of the Independent Trustee Company, Aidan McLoughlin, said: “For an employee with no company pension scheme a key feature of the NPF is the idea of auto-enrolment. This means that you will automatically be put into a state run scheme unless you are a member of an equal or better pension scheme.

“Auto-enrolment will also allow you to opt out but only after a period of three months.”