Wednesday, 8 August 2012

Quick point on levelling down

Just a quick point on pensions policy. I've been following the debate on greater compulsion to save for retirement for about 15 years (!). During this time the claim has been repeatedly made by various organisations that complusion, or latterly auto-enrolment, will lead to levelling down.

Typically by this critics mean that while more individuals may save, the average amount of saving may go down (for example, as firms cut back pension contributions to match the minimum required). A further point that has been made is that whilst auto-enrolment may boost pension saving, this could simply represent displacement of other saving. So the overall savings rate might be unaffected.

Well, now we get the chance to test the these predictions (which, needless to say, look a bit like 'Hirschman specials'). My own view, having read a bit about the Aus experience, is that we may well see a bit of shifting of savings (towards pensions, away from others) but we'll also see a net gain. If we don't see an overall increase in saving the critics will have had a very important point proven. But equally if we do then I hope journos who ran 'auto-enrolment will result in levelling down' headlines will go back to those making the claims to get their explanation.

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