Savings cap will hit pensioners

By Jennifer Hill

LONDON (Reuters) - Pensioners will suffer if the government caps the amount that can be paid into a new scheme designed to boost retirement savings, a survey shows.

The report by Which? reveals that only 12 percent of the target market for the government's proposed "personal accounts" believe there should be a limit on contribution levels.

In fact, 70 percent think there should be flexibility and 52 percent say the hassle of opening a second personal pension would put them off saving more if a low cap were applied.

The government plans to introduce the accounts, also known as the National Pensions Savings Scheme (NPSS), in 2012.

It aims to encourage around 10 million Britons without a workplace pension to save and help plug a 57 billion pound savings gap.

Under the NPSS, employees will pay contributions of around 4 percent of earnings, while employers will pay 3 percent and 1 percent will come from the government in tax relief.

All employees not currently in a scheme will be automatically enrolled, unless they specifically opt out.

The financial services industry has said a cap on contributions is necessary, so that the NPSS acts only as a first tier to pension saving and does not cause employers to "level down" contributions to existing occupational schemes or close them altogether.