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.
The average employer currently contributes around 6 percent of workers’ salaries to defined contribution pension schemes.
The National Association of Pension Funds has suggested a NPSS cap of around 3,000 pounds per year, while the Association of British Insurers has said the government should lower the cap on annual contributions to 3,000 pounds or lower, from 5,000 pounds, to ensure the scheme remains aimed at small savers.
But only 18 percent of respondents to the Which? survey would support a level of 3,000 pounds, while 42 percent think it should be at least 5,000 pounds.
Emma Higginson, personal finance campaigner at Which?, said: “Personal accounts must not fall at this hurdle: the absolute priority must be a scheme that is designed to enable people to save in line with their aspirations for a comfortable retirement.
“Our evidence is clear — consumers want a flexible personal account with no contribution limit and if there was a limit, only a minority favour a cap of 3,000 pounds.”
Which? questioned almost 900 people, and excluded results from those earning less than 5,000 pounds per year or more than 33,000 pounds, as well as people already in a company pension.
The first reading of a bill to lay the groundwork for personal accounts is expected to reach parliament this autumn.