The pensions industry is split over a newly published report by the Department for Work and Pensions (DWP) that claims that 95 per cent of savers will be better off once auto-enrolment comes into play in 2012.

Saving for Retirement: Implications for pensions reforms on financial incentives to save for retirement says that only five per cent of people who are automatically enrolled into workplace pensions from 2012 will not get back the full value of the money the contribute, and also claims that over 70 per cent of savers can expect to get back more than twice what they put in, even after taking inflation into account.

However, several industry experts are concerned that the report does not consider the elephant in the corner - means-testing - in its conclusion.

"The Government's comments on means-testing amount to 'move along, there is nothing to see'," said Paul Macro, a senior consultant at Watson Wyatt. "That's because anything they could do to reduce the penalties for saving would involve either spending more taxpayers' money or increasing benefits to poorer pensioners less quickly. They think means-testing is the lesser of three evils and would prefer the question to go away. Unfortunately, it will take more than a long research report and some helpful modelling assumptions to do that."

Standard Life has also picked up on the failure by the Government to acknowledge that many employers plan to pass the cost of the employer contribution to the employee through lower wage rises or wage freezes. John Lawson, head of pensions policy at Standard Life, agreed that greater clarity is necessary with regards to means-testing.

The National Association of Pension Funds (NAPF), however, did not refer to these issues in its response: "The research shows that for the majority of people it will pay to save," said Joanne Segars, chief executive at the NAPF. "But there is an important minority for whom this is not the case.

"If Personal Accounts and auto-enrolment are to be successful, the Government must work hard between now and their launch in 2012 to rebuild confidence in retirement saving." The NAPF recommended that the Government must work on communication of the benefits of retirement saving, and to ensure that public confidence is not further undermined.

Scottish Life's Gareth Evans, head of corporate affairs, is also worried that the DWP has assumed Personal Accounts can be delivered for 0.5 per cent, which is a figure "at the lower end of current expectations. Any higher annual charge will mean that significantly more savers will fail to benefit from saving," he said. With regards to means-testing, he added: "We urge the Government to focus on the issue of means-testing and to come up with some legitimate solutions, as however hard the DWP wishes, the issue will simply not go away."

- Pensions Age February 2009

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