Pensions experts say policymakers will be forced to pursue full-scale compulsion if automatic enrolment fails to significantly boost saving levels in the UK.
Under the Government’s flagship pension reforms, everybody aged 22 or over earning more than £7,500 will be auto-enrolled into a workplace scheme.
However, the Government has stopped short of forcing people to pay into a pension. Instead, anyone who chooses to opt out will be re-enrolled every three years.
The Department for Work and Pensions expects more than 10 million people to be auto-enrolled into a workplace pension scheme between 2012 and 2016.
Barnett Waddingham consultant Malcolm McLean says compulsion will be inevitable if auto-enrolment fails.
He says: “The Government’s attempts so far to overhaul the state pension scheme may not be enough. It needs to start putting together a contingency plan for what can be done should higher numbers than expected choose to opt out of auto-enrolment.
“Should auto-enrolment fail, the next step will have to be full-scale compulsion. This may sound radical, and some initial resistance could be felt, but we already have a form of compulsion in National Insurance contributions and it may be the only way to prepare for, and cope with, a longer living society.
“I would predict that full-scale pension scheme compulsion could be in place in five years if auto-enrolment does not deliver as expected.”
Evolve Financial Planning director Jason Witcombe says: “Automatic enrolment is a massive step towards compulsion anyway. If that does not work, it seems likely that compulsion will happen.
“From a policymaker’s point of view, it would be easier to have compulsion than to tell people that taxes are going to have to go up to pay for a bigger state pension.”