UK - Pension reforms designed to auto-enrol eligible employees into qualifying workplace pension plans will only produce a "relatively small" increase in overall pension savings, the Institute for Fiscal Studies (IFS) has warned.

In its report entitled Amounts and Accounts: Reforming Private Pension Enrolment, the IFS hypothesised the number of individuals likely to be affected by the reforms, including the introduction of personal accounts.

The study revealed that in 2005 there were around 20.3 million individuals in the target group of employees aged between 22 and state retirement age earning over £4,895 (€5,801), and of these 14.6%, or 4.7 million, had not been offered the chance to join an employer's pension scheme.

In the report, the IFS suggested these 4.7 million workers are more likely to be auto-enrolled into personal accounts, although 3%, or one million, of them had voluntarily purchased a personal or stakeholder pension.

That said, the study noted that employees would generally offset any increase in pension saving with lower liquid wealth, which could mean people without any other savings or investments to fill the income gap left by to pensions contributions were more likely to see their debt levels increased, or at least reduce them less quickly, than if they were not auto-enrolled.

Of the 4.7 million that could have been auto-enrolled in 2005 - if the reforms had been in place - the median contribution would have been £770, with a mean contribution of £900 thanks to the distortion of contributions from a few high earners, while over a five-year period this would have grown to just £2,170.

The IFS suggested the aggregate contributions for personal accounts would be £4.2bn a year and £13.3bn over a five-year period, however it warned that 46% of members in the scheme for the full five-year period would have total contributions of less than £2,000, while only 20% would have contributed more than £4,550.

The IFS said this is likely to create a large number of accounts with relatively small default fund contributions, so while "we might expect private pension coverage to increase as a result of these reforms", the increase in pension saving and "therefore overall savings brought about by the reform is likely to be relatively small".

This is because not all of the contributions will be new pension savings, as even those who would not have saved in private pensions in say 2003 might have placed the funds in a private pension the following year, so this could create "considerable competition between personal accounts and existing pension providers for new funds".

Matthew Wakefield, senior research economist at the IFS and co-author of the report, said: "In 2005 half of employees not contributing to a private pension earned less than £14,000 and more than half had no net savings. Getting such individuals into pension saving might be seen as a success of the policy, but any increase in pension saving is, at least in absolute terms, likely to be small.

"While many of these individuals have little scope to finance new pension saving by reshuffling existing assets, some could pay down existing debts less quickly, which would still mean that new pension saving was not new pension saving overall," he added.

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