Should You be Forced to Save for Retirement?
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Saving for retirement is something that is high on most people’s to do list, but do you actually do it? New recommendations from the policy exchange seem to suggest that we don’t and it’s believed that if we are going to avoid poverty in our retirement then most people should be saving at least 6 times more than they do! They also said that around 11 million people in the UK are at risk of pension poverty. One of the recommendations they have made is that people should be forced to save for their retirement by removing the opt-out option that currently exists to auto enrolment. They also said that as people’s incomes rise, so should their compulsory pension contributions. But is compulsory pension saving right for everyone and would you be happy if you were being forced to start saving for retirement?
The benefits of compulsory pension saving are pretty obvious in that they relieve the burden on the state and ensure people have enough money to retire on. What about the possible negatives though? Here are just a few possible downsides to consider.
You can’t afford it
As much as compulsory pension saving seems like a great idea, you can’t just ignore the fact that a large part of the population are not saving for retirement because they simply can’t afford to. By forcing people to avoid pension poverty, will we instead be sending them into current poverty? There is of course another side to the argument that would say that we all live to our means, so if we were forced to save for retirement then we would eventually get used to having less money and adjust our spending accordingly. While this might be true for some people, I genuinely think that some genuinely don’t have much disposable income as it is and if the little they do have was to be taken away then it could make for some pretty poor living conditions.
You want to invest in something else
What if you feel that your money would be better off invested somewhere else, like a self- managed share portfolio or investment in property? If you were forced in some way to place a portion of your income into a standard pension plan then this would certainly hinder your ability to plan sensibly for your own retirement in a way that you see fit.
You are expecting an inheritance
Now I know that this option is far from gaurenteed as anyone can lose a fortune at any time. What though if you are currently struggling to meet your daily commitments but you know that retirement living is unlikely to be an issue because you are expecting an inheritance of some sort well before retirement age. Should you still be forced to save more than you can really afford at present?
Does it infringe on your rights?
These are just three of what I would assume are a variety of reasons as to why compulsory pension contributions might not be right for you. So what do you think? Should pension contributions be made compulsory and the opt-out option removed, or should personal circumstances and investment goals be taken into consideration? Further to that, is it a personal right to use your money as you see fit or is it right that we be forced to save for retirement?
I recently started a new job that has a Pension plan and I’m very frustrated that I cannot opt-out of it. Why? Because I have $50,000 in student loan debt that I would like to pay off before I retire! But I can’t afford my student loan payments because of the big chunk of each paycheck that goes towards my pension… How is that logical?
I agree Amanda, I feel it should be up to an individual to decide how best to invest/spend their pay packet. I understand that we all have to contribute to the standard state pension but beyond that I feel it should be up to you.
I’m personally all for it. You say that many can’t contribute to their retirement funds “because they simply can’t afford to”.
I would disagree and argue that they NEED to contribute because they “can’t afford NOT to” if they want to live comfortably in old age.
Its all about budgeting well and cutting back on non-essentials for the benefit of the long-term.
Regarding the “wanting to invest somewhere else”, I understand this argument, but pension pots are generally very flexible and you can opt in to self-manage and use it on a HUGE variety of investments.
I understand your argument Graham but I genuinely believe that some people are on the brink as it is and that taking a further chunk out of their wage each month would tip them over the edge. Coming from a single parent family I can remember that – as thrifty as my mother was – we still never had any spare cash and I had to work while still at school to help out with the bills. I also think it’s a bit odd to tell people they need to save more for retirement after 5 years of hammering those who have saved wisely with record low rates, but that’s another debate I suppose.
Interesting point on self managing them though, I’ll have to research that a little more.
I think every one should be encouraged to save for their future or for their retirement but should not be forced to do so. If a person really wants to have a better future, then I don’t think he would hesitate to save now, right?
I’d agree with that. I certainly think it’s important to encourage people to save for retirement but apart from the state pension, I think it really should be up to the person to decide how and when they make those extra contributions.
At one point the US government says “Yes” to this question, which is why the concept of Social Security was born. It’s not meant to be your only source of retirement income, but it’s supposed to at least help.
Only when you start looking at area’s like pensions do you realise how big a mess there is to sort out. We’re flat broke as a nation so we’re shifting more of the burden onto individuals but then many individuals are struggling too be it with student debt, personal debt or simply the cost of living. The next 10-20 years will be interesting to say the least.
Great post Adam. As someone who hasn’t done much about saving for retirement (yet!) because of paying off debt, I kind of feel that being encouraged to save is the way forward.
Not forced though – as you say, some people don’t have a lot of disposable income and surely that wouldn’t be fair. But if some kind of incentive were put in place for people to opt into a pension, perhaps that would act as encouragement. Not sure what exactly. Some kind of tax break?
Yes Hayley, I definitely think incentives are a good idea. I understand the problem is that most people just keep putting it off until it’s too late but I also think that our consumer driven society has a lot to answer for in that regard. There seems to be a lot of mixed messages around at the moment. On the one hand banks are being encouraged – if not forced – to lend so that we can keep on spending money we don’t have but then on the other hand we’re being told that we have to save more for our retirement and from a younger age. How do those two things go hand in hand? I’m not sure myself.
Hi All,
I think a reference from Collin’s definition of slavery is appropriate here.
slavery (ˈsleɪvərɪ)
n
1. (Law) the state or condition of being a slave; a civil relationship whereby one person has absolute power over another and controls his life, liberty, and fortune
2. the subjection of a person to another person, esp in being forced into work
3. the condition of being subject to some influence or habit
4. (Industrial Relations & HR Terms) work done in harsh conditions for low pay
– Check definition number 1, I think it applies pretty well to these types of proposals.
Boy do I have mixed emotions about this one. As a conservative/libertarian/constitutionalist, I certainly am against the government mandating that I do anything with my money beyond paying my so-called fair share of taxes. On the other hand, I am also against people spending all their money throughout their working years and then complain that they don’t have enough to retire on. In the U.S. there is Social Security which was NEVER intended to be the only means to financing retirement. Beyond that, if people aren’t forced to do retirement savings, many will do nothing. So I guess my answer would be no, they shouldn’t be forced to save for retirement as long as they never ask the government….i.e. taxpayers….to fund their retirement more than SS. Yes, there will be people who are in poverty circumstances without assistance but that is the risk they take by not saving for themselves. Call me cruel…..