People should not be allowed to opt out of auto-enrolled pensions, the Policy Exchange think-tank has recommended, warning that 11 million Britons were facing poverty in retirement
In a report published today, Policy Exchange argued that building up a pension pot should be an obligation equivalent to paying taxes and proposed a compulsory 'Help to Save' scheme.
This would remove the opt-out that current applies to the government's auto-enrolment programme unless an individual could show that they already have sufficient funds in a pension pot. Although only 10% of employees have opted out so far, the think-tank warned that this could rise as smaller firms enter the auto-enrolment regime.
Report author James Barty said: 'People are not saving enough for their retirement. This is putting an intolerable burden on the state, which needs to be addressed sooner rather than later.
'With an ageing population, putting money aside for later life should be seen in the same context as National Insurance contributions, taxes and even education - an obligation that falls on everyone in society.'
The paper also called for a shake-up of the annuities market to increase the choices available to people when they reach retirement.
This should include an annuity-type government bond that could be bought instead of regular annuities. 'Insurance companies and other pension providers could then offer products that would provide income after the bonds had expired,' Policy Exchange said.
'In this way you could break out the life insurance and interest parts of the annuity.'
In addition, ministers should allow up to 50% of the minimum income requirement above the state pension to come from a source other than annuities. This could be in the form of an income drawdown or a mixed asset fund, giving pension fund holders the chance to both conserve their capital and receive an income.
Independent pensions expert Ros Altman said action needed to be taken to avoid increasing numbers of older people living in poverty.
'Ensuring that peope contribute more than the auto-enrolment minimum is certainly important to deliver better pensions and using pay rises to fund higher contribution levels is the best approach,' she said.