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Lower paid workers could lose out as a result of pensions auto-enrolment

Business Sir Brian Souter, the president of the accountancy body ICAS, has called for a review of the situation after commissioning research.

Workers earning the National Living Wage could be left “significantly worse off” in their retirement as a result of the Government’s pensions auto-enrolment scheme, new research has suggested.

Leading businessman Sir Brian Souter commissioned the analysis as part of his work as president of the accountancy body ICAS.

For someone living in social housing, who has paid into a workplace pension all their life, it could take 48 years after their retirement for them to be better off than if they had simply received a state pensions and other benefits, this claimed.

Now Sir Brian has called on the UK Government to review workplace pensions to ensure a better deal for lower paid workers.

The Stagecoach founder said: “While overall we support the concept of workplace pensions, we believe the Government must look again at the deal they offer to the lower paid.

“It can’t be right that a policy which aims to help people in retirement could actually result in the poorest getting poorer.”

The analysis looked at retirement income from a work place pension for those earning the National Living Wage – which is currently set at £7.50 an hour.

It suggested an individual could receive a weekly income of £263 from a private pension, compared to the £256 they would get from the state pension and benefits.

Meanwhile a couple in the same situation would receive £408 a week from their pension, according to the research, less than the £415 they would be entitled to from the state pension and benefits.

ICAS president Sir Brian Souter (Stagecoach/PA)

Sir Brian said: “Taking into account the interaction between pension benefits and state support, those earning around the National Living Wage could actually be significantly worse off in their retirement.

“At present, if an individual chose not to invest in a private pension and instead relied on the state pension, they are most likely entitled to means-tested housing and council tax benefits in retirement.

“However, if the individual chose to invest in a private pension at current auto-enrolment contribution levels, they could restrict their access to any means-tested state benefits in retirement (and, in turn, be forced to rely on a mediocre income from their pension pot).

“Couples who earn the National Living Wage would receive a similar or lower income in retirement than if they did not save today and relied purely on state benefits.”

He urged the Government to review the situation, saying: “Everyone has the right to a decent pension in retirement.

“Likewise, an individual should feel that by sacrificing today and contributing to a pension, they are putting themselves in a better financial position than those who make no contributions at all but simply hope the government of the day will provide an adequate level of support through means-tested state benefits.

“Although state benefits may change in the future and this inequitable situation may be reversed, it is patently wrong to be sending a message to the lower paid to auto-enrol and make personal financial sacrifices, when that could make them worse off in retirement.

“A potential solution is for Government to revisit the criteria for means-testing state benefits to ensure that those who do save for a pension are rewarded, not penalised.”

A spokesman for the UK Department for Work and Pensions said: “This analysis makes assumptions that won’t apply to the vast majority – it suggests that people will stay on the same income for their full working life, and does not take into account changes in employment, or lifestyle.

“The state pension provides a solid foundation but in order to maintain their standard of living people will need to build up private savings for retirement and automatic enrolment is delivering this for millions of people.”

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