Altmann says the proposals, which would require annuity providers to hold more capital, are set to slash retirement income across all defined-contribution schemes by 20 per cent. She says the Government must factor this in when determining how many people will benefit from saving into personal accounts.
The Department for Work and Pensions revealed in February that 30 per cent of people may fail to benefit from the full 8 per cent contribution, which in itself has been criticised as too low.
Altmann says Solvency II will make things far worse.
She says: “The Government will be locking people into a lower income. The amount being put into personal accounts is so inadequate and people are going to have to save far more for a decent pension but none of the parameters of personal accounts are taking account of what is going on.
“It is as if everything is marching along as before but people are going to see a significant reduction in the pension outcomes from personal accounts relative to what we were forecasting before, which was already pretty rosy. Even if you are not caught up in means-testing, you are going to end up with much less than the Government is leading people to believe potentially and that calls into question all the parameters around personal accounts.”
Aon senior consultant Richard Strachan says: “If people see the levels of annuity income falling away, it will not help the apathetic save for retirement and may lead to more personal accounts opt-outs.”
The DWP says it recognises the possible higher cost of annuities under Solvency II and is working with the Treasury and other EU member states on the issue. Pada says it will take acc-ount of relevant legislation and design a strategy suitable for low to moderate earners.