Independent pensions analyst Ros Altmann has warned of a future risk of litigation if the Government auto-enrols all workers into the National Savings and Employment Trust.
Altmann proposes that only those earning more than £15,000 into the Nest or the Government could face legal action from those who end up worse off as a result of saving in the scheme.
In her response to the Department of Work and Pensions’ consultation on workplace saving, Altmann says just getting people to contribute small amounts to a pension arrangement does not solve the problem of inadequate retirement income.
She says that a pension may not be a suitable product for low to moderate earners, they may be better off with an Isa to avoid means-testing penalties. Altmann says that increasing the trivial commutation limit might help with this, but may not be sufficient.
She argues that the Government could be lulling workers into a false sense of security if they believe that 8 per cent of earnings will deliver a satisfactory pension income.
Altmann says: “The best way to tackle pensioner poverty quickly, especially for women, is to pay a decent universal state pension, as of right, to all citizens. Even if that is paid from age 70, 72 or even 75, at least there will be a particular age beyond which private income will be free from means-testing penalties.”
She also suggests starting by auto-enrolment into existing schemes to reduce the threat of levelling down, introducing a three-month delay before auto-enrolling employees and allowing those who know in advance that auto-enrolment is not appropriate for them to avoid being enrolled into a scheme in the first place.
Altmann says that the 2 per cent charge will make Nest’s cost advantage weak and warns that investment and annuity risks have been underestimated.
She suggests the Government should consider underwriting annuities for Nest.
Altmann adds: “The previous conclusions ignored annuity risks but if annuity rates continue to fall, then pension income will be hit, even if investments do well. Perhaps Government should issue or underwrite annuities for Nest.”