15 September 2012

Why I Believe Auto-Enrolled Pension Will Penalise Low Paid.

Starting October 1st until 2017, most workers not in a work based pension will be auto-enrolled in one, unless they quickly opt out.

All of the following figures are approximate and at 2012 prices.

Someone aged 42 earning around 20k a year will pay roughly £20 a week. At 67 they will get 10k lump sum and £30 a week.

Over 25 years they will have paid in 25k. So just to get their money back they need to live till 77 (10k+1.5k for 10 years), which for a low paid worker is about average life expectancy.

This all assumes stock market does ok, it may do better or worse.

Workers are being told that this is a good deal. They are being told that because employers are contributing 3% of wages as well as their 5% contribution, this is free money and that it is tax free.

They may have heard that this will revive the private pensions industry and indeed it will.

What they may not of heard is the huge fees the industry will be charging them.

They may have heard how keen the government is on this scheme and indeed they are.

They may not have been told that if they rent, get ill or disabled, any pension will be deducted from any benefit payments.

They are also not guaranteed a 67 retirement age. By then it may well be higher.

And, have you ever considered whether a pound spent on fun when you are 67 is worth the same as when you are much younger? Poor health and expensive insurance can limit holidays for the elderly.

Just to tempt people not to opt out payments will be as little as £5 a week for 1st year, rising to £20 a week by year 3. But by then it will be much too late to opt out. Yes the government aren't gonna let you leave. Ever wondered why?

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