The government’s scheme to give all employees in the UK access to an employee-sponsored pension scheme has been a massive failure, according to research from the Association of British Insurers (ABI).
More than two years after the government launched it’s stakeholder pension policy, some 350,000 employers have designated a stakeholder pension scheme but more than 80 per cent of these are ‘empty boxes’ with no members. A mere 13 per cent of employer-based schemes have employer contributions.
The ABI survey found that while 1.25 million stakeholder plans have been sold since the scheme’s launch, the average contribution has been £155 a month. This suggests that people on incomes of less than £20,000 per annum, the original target market, are not buying the plans.
Almost half of all payments into the schemes are also transfers from other policies, and so are not adding to savers' provision for their retirement.
Meanwhile, sales of regular-premium individual stakeholders plummeted in the second quarter of 2003, falling 30 per cent from the same period last year to 57,000.
The ABI said the one per cent cap on the amount insurers could charge for managing stakeholder pensions imposed by the government was largely to blame for the lack of take-up by companies.
These tight margins prevented financial advisers and insurers from advising employees at small companies to take up a pension.
Mary Francis, director-general of the ABI, said: "Stakeholder pensions have so far fallen short of expectations. We need more action now to ensure that people use them to start saving for a decent retirement."
"We know that active employer involvement in pensions works. That’s why we’re recommending a programme of employer action to boost pension take-up, to be taken forward in partnership by Government, employers, unions and the pensions industry."
The ABI has urged the government to take steps to encourage employers to promote the schemes they sponsor and introduce tax incentives for employers to provide financial advice to their employees.