Brian Souter, president of accountancy body ICAS, has called on the UK Government to review its arrangements for workplace pensions to “ensure a better deal for the low paid.”
Souter’s plea comes as latest government figures show more than one million employers have enrolled their staff into a workplace pension.
More than nine million people in the UK are now investing into a workplace pension for the first time under auto-enrolment.
Souter’s ICAS analysis suggests that it would take an individual who lives in social housing and has paid into a workplace pension all their working life, 48 years of retirement to be better off than if they’d just claimed the state pension and benefits.
Souter said: “While overall we support the concept of workplace pensions, we believe the Government must look again at the deal they offer to the lower paid.
“It can’t be right that a policy which aims to help people in retirement could actually result in the poorest getting poorer.”
The analysis looks at the impact on a person’s retirement income of investing into a workplace pension based on earning the National Living Wage.
All those earning more than £10,000 are automatically enrolled.
ICAS said that from April 6, 2018, the minimum contributions employees must make will increase to 3% of earnings, while their employers must contribute 2%.
This will rise to 5% for employees and 3% for their employers from April 6, 2019.
“Ignoring inflation, workers making the 5% contribution could pay in £437 a year – a total investment of £17,500 over a 40-year working life,” said ICAS.
“Their employers would pay a 3% contribution of around £262 a year or £10,500 over the same period. Amounting to total contributions of £28,000.
“Low paid workers with assets in a workplace pension could have their benefits restricted as a consequence of saving.
“The study shows that £8 a week contributed by those living alone may only generate an additional pension of £7 per week in retirement.
“Couples could be worse off to the tune of £7 per week or £364 per year.”
Souter added: “Everyone has the right to an adequate pension in retirement.
“Those contributing to a workplace pension should expect to be better off not worse off than those who simply choose to live from a state pension and means-tested benefits.
“The Government needs to revisit the criteria to make the workplace pension a fairer deal for the low paid and to ensure they are rewarded for investing and not penalised.”