‘Nudge’ workers to save more for their pensions

EMPLOYEES must be urged to boost pension contributions at key stages in their lives, says a report.

Reminders to up savings would be sent when workers get a pay rise, their children leave home or their mortgage has been paid off.

Automatic enrolment into workplace pensions does not encourage contributions that rise with age, says the Institute for Fiscal Studies.

But their research argues the focus should be on policies that increase retirement saving at the optimum time in people’s lives.

The IFS calls for employee contribution rates that rise with age and are triggered by earnings increases.

There could also be nudges to encourage people to increase input to their pot when they have become

“empty nesters” or when they finish debt repayments such as student loans or mortgages, the IFS said.

For a typical graduate with two children, IFS modelling suggests that they should increase contributions from around five per cent of pay before their children leave home to between 15 per cent and 25 per cent after. This would mean making two-thirds of their contributions after the age of 45.

The IFS says a lack of flexibility in pension schemes can lead to many young public sector workers saving more for retirement than they are comfortable with at that stage.

Rowena Crawford, an associate director at IFS and one of the authors of the report, says: “As policy makers consider how to boost retirement saving, focus should be on policies that increase contributions at the best time in people’s lives rather than just increasing saving, irrespective of circumstances.

“Minimum contributions that rise with age are an obvious option.”

The Department for Work and Pensions spokesman has said its policy of automatic enrolment has been a bit success, with more than 10 million workers taking part.

The Government plans to enable people to save more and to start earlier by abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled from 22 to 18 in the middle of this decade.