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Mass levelling down could lead to £10bn hit to pensions savings

Annual pension contributions could be £10bn lower in 2050 if the majority of employers level down their pension contributions when personal accounts are introduced compared to if there was no reform.

A report from the Pensions Policy Institute into whether personal accounts will increase pension saving has found that the success of the schemes is very dependent upon how employers will act.

In a worst case scenario, the PPI says that if no employer offers more than the minimum contribution level of 3 per cent required under the reforms, the annual total pension contributions could be £10bn lower in 2050 than if personal accounts had not been introduced.

The PPI says that if some employers close their existing schemes or reduce their pension contributions in 2012, the reforms would only increase pension contributions by £2.5bn in 2050, compared to if the reforms had not been introduced.

Standard Life head of pensions policy John Lawson says: “The Government is taking an enormous gamble on how employers will act. There will almost certainly be a lot of employers who will close down their existing schemes or reduce the level of contributions when personal accounts are introduced.

“There will be a minor increase in savings, but these contributions will be spread across a wider group of people so average contributions will go down.”


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