Apathy rules supreme in workplace pensions. Almost 30 million people work in the UK’s private sector and for many, a pension contribution is just another line on the monthly payslip.

It’s precisely this mindset that government ministers were counting on when they introduced auto-enrolment in 2012, forcing employers into offering workplace pensions but leaving employees with the final decision.

The hunch proved to be well-founded. Although workers can opt out at any time, very few have. Within a decade, the proportion with a workplace pension rocketed from 42pc to 88pc and auto-enrolment became admired around the world.

Yet in one Eastern European nation, plans are afoot for a change that critics say puts a million retirements at risk.

Just six years after introducing it, Lithuania is ditching auto-enrolment.

Radical reforms

Lithuania is governed by a coalition, led by the centre-Left Social Democrats, following last October’s elections.

After inheriting a pension setup from the former Soviet Union, the Baltic state has made several changes since 1995 and now operates a three-pillar system.

There’s a state pension, where workers need 15 years of contributions to qualify and 30 years for the maximum pension, along with a voluntary private scheme that began in 2004.

However, it is changes to the country’s second pillar that are making waves.

Employees currently contribute 3pc of their salary and receive 1.5pc of the national average wage as a top-up from the state. Auto-enrolment occurs every three years and if they do join, there is no real way to opt out until retirement.

Under the new proposals, the system will become entirely voluntary. The 1.5pc top-up will also end, with tax relief replacing it. Employers don’t currently have to pay in, but they will be encouraged to do so – and receive their own corporate tax relief in return.

Savers will also be able to move their contributions up or down and take lengthy payment holidays of over a year.

A Lithuanian government spokesman said: “Among other goals, the amendments aim to increase the flexibility of the system and add incentives for voluntary participation.

“The personal income tax relief, which will replace [the 1.5pc] subsidies, will encourage residents to save, reduce their tax burden, and increase incentives to work and earn.

“For those with lower incomes, the ability to adjust the amount of the contribution or stop it would provide security and increase the attractiveness of savings.”

Increased old age poverty

Critics, however, are speaking out. PensionsEurope, which represents 25 member associations across the Continent, said the plans would “severely undermine” Lithuania’s retirement system and called for an urgent change of course.

Pointing to the success of auto-enrolment in the country, it warned that a voluntary model would mean fewer people saved into a pension, leaving them with lower retirement savings and an increased risk of old-age poverty.

Matti Leppälä, secretary general of PensionsEurope, said: “Auto-enrolment in the UK has been a real success, with nearly 11 million people brought into the system over the past decade. Lithuania followed this model, and for the past two years, it has delivered great results with a high coverage rate.

“Reversing it now would be a huge step backward and only exacerbate the country’s retirement challenges, which are already marked by a high rate of old-age poverty and low pension earnings.’’

The Lithuanian government, however, is pressing ahead and consultations are already under way.

There are no such plans in the UK. Current rules mean companies must provide a workplace pension, and contribute a minimum of 3pc of salary, for workers between the age of 22 and state pension age who earn at least £10,000 a year. Workers are placed into a scheme automatically unless they opt out in writing.

Legislation has also been passed to enable lowering the minimum age to 18 and completely remove the £10,000 limit.

Sir Steve Webb, the former pensions minister, said auto-enrolment had transformed the UK’s pensions landscape and any attempt to scrap it would be catastrophic.

He said: “Prior to its introduction, the proportion of private sector workers saving into a pension had fallen to around one in three. There was a growing risk of millions of workers being heavily dependent on the state pension and potentially having to work longer or retire poorer than they would have wished.

“Around 10 million more people are now saving into a pension and there have been particular increases among younger workers and the lower paid, who were less likely to have pensions before.

“If anything, we need to go further and faster with automatic enrolment in the UK, rather than potentially undermine it.”

One criticism across the pensions industry, however, is that the level of contributions required under auto-enrolment is too low.

One in five pensioners already live in poverty. Over a million survive on the state pension and state benefits alone. If there are two things that experts agree on, it’s that Britain’s population is ageing and we are not saving enough for retirement.

The second half of Labour’s pensions review was expected to address these issues, but the manifesto pledge has now been indefinitely delayed.

Apathy, it seems, is not just for pension savers.

 

 

 

 

Read more @yahoo