The government may force UK employers that do not pay contributions into a staff pension scheme pay for financial advice for their employees under new proposals announced by the Department for Work and Pensions.
The option is among a range of measures intended to encourage people to save more for their retirement and plug the UK’s yawning £27bn ‘savings gap’.
In its 2002 pensions green paper, the government estimated that three million people are under-saving and a further five million to 10 million need to consider saving more.
Other ideas under consideration include automatically enrolling new employees into their company pension scheme unless they explicitly opt out from joining and getting people to commit future earnings to pension saving. Personal finance lessons will also appear on the national curriculum for schools.
The Pensions Advisory Service (OPAS) has welcomed the measures. Technical director Des Hamilton said: "We think it is a very good move. We have seen membership of occupational schemes, often very good ones, drop to below 50 per cent in the past.
"The process of joining can be complicated, and people's apathy means they leave membership invitation in drawers and don't get round to joining occupation pension schemes. But where employers have chosen to implement similar automatic membership, take up increases to around 90 per cent."
But the Federation of Small Businesses warned that placing the onus on employers to provide financial information would represent a “significant cost burden” for small employers.
The government also said that it would create a new active retirement planner web site which aims to give people a clear idea of what retirement income they can expect, both in terms of private and state provision.
But opposition politicians said that government-introduced means-tested benefits are the real cause of the decline in retirement savings. Since the basic state pension is linked to rising prices while benefits (the so-called Pension Credit) go up with wages, private savings merely reduce the entitlement to benefit, they argue.
Work and pensions secretary Andrew Smith said: "The state of your pension should be as important as the state of your health. We want to provide people with the tools to make informed decisions about their future.
But many experts were scathing about the proposals, saying that they did not go far enough to boost pensions and amounted to little more than window dressing.
"Pensions are a complete muddle," said Giles Orton, head of pensions at City law firm Eversheds. "Unless the Government speeds up this process and simplifies the rules, pensions will have to be a degree-level subject."