Hain urges employees to 'take responsibility' for pensions

Individuals are responsible for preventing a national pension crisis in the future, the Government warned yesterday.

Speaking ahead of the second reading of the Pensions Bill, which proposes automatic enrolment from 2012 into workplace pensions, the Secretary of State for Work and Pensions, Peter Hain, said individuals must take responsibility for their own retirement savings and that radical change is needed to stave off the effects of a low current level of retirement saving and dramatically improved longevity.

"If we don't tackle the challenge of under-saving, by 2050 we face the nightmare of a pensions crisis with people of working age struggling to pay for an ageing population. Around three quarters of people say they will need more than the state pension to live on. But actions do not match words only four in 10 working-age people are saving into a private pension.

"The state, individuals and employers all share in the responsibility to avert such a crisis," he said. "We must act decisively now to renew the social contract between us. To achieve the type of lifestyle individuals expect in retirement, they must take personal responsibility by participating in a pension. Automatic enrolment will combat the inertia which is such a barrier to saving."

The Bill proposes that employees would contribute a minimum of 4 per cent, employers a minimum of 3 per cent, with around 1 per cent in tax relief from the state. The state pension age will gradually rise to 68 by 2046, and a National Pensions Saving Scheme, or "personal accounts", will be introduced in 2012 to try to plug a 57bn savings gap.

Critics including John Lawson, head of pensions policy for Standard Life, said that if the Bill is passed without amendment, existing pension provision could be seriously harmed. He urged the Government to address issues including the potential conflict of interest at the Personal Accounts Delivery Authority, the use of auto-enrolment and means testing. As the Bill stands, one in five future pensioners could be worse off than those who opt out of personal accounts and choose to rely on state benefits.

Others warned that recent legislation has focused on protecting pensions without encouraging good workplace pension schemes. Adrian Waddingham, senior partner at Barnett Waddingham LLP, said: "How sad if employees have nothing better to look forward tothan low-level, risky personalaccounts."