THE PRESIDENT of the Institute of Chartered Accountants of Scotland (ICAS) has claimed that lower-earners would be better off opting out of workplace pensions and relying solely on state benefits to fund their retirements.

Brian Souter, who is also chairman of Stagecoach Group, a transport business with 34,500 employees, said that as those receiving the state pension alone would be entitled to higher benefits, someone earning the national living wage would be better in retirement off if they did not save into a workplace pension.

Currently all employees earning at least £10,000 are auto-enrolled into a workplace pension. While they can choose to opt out, those that remain in the scheme are required by law to contribute one per cent of earnings between £5,876 and £45,000, with their employer making a matched contribution.

From April this year employees will be required to contribute three per cent of salary and employers two per cent, with the proportions rising to five per cent and three per cent in 2019.

According to Mr Souter’s calculations, someone earning the current living wage of £7.50 an hour for 40 years would accumulate a pension pot of £17,500, which would be boosted to £28,000 with employer contributions.

Mr Souter said this would buy a weekly annuity income of £43. Taking various allowances into account and adding the current state pension of £159 he said that would result in a total weekly income of £263.

Including benefits, someone on the state pension alone would have a weekly income of £256, he said, but as they would have had to contribute £8 a week while working to receive the £7 uplift they would have to be retired for 48 years to realise the benefit.

“Although state benefits may change in the future and this inequitable situation may be reversed, it is patently wrong to be sending a message to the lower paid to auto-enrol and make personal financial sacrifices, when that could make them worse off in retirement,” Mr Souter said.

He added that the Government “must look again at the deal offered to the lower paid” to “ensure that they are rewarded for investing and not penalised”.

TUC policy officer Tim Sharp said the onus should be on employers to help their staff save more for retirement by exceeding the minimum auto-enrolment contribution levels. Prior to auto-enrolment being introduced many employers offered contribution rates in excess of the current statutory minimums.

“The key to decent pensions is for employers to put in reasonable contributions. Too many do the bare minimum to meet their legal duties,” Mr Sharp said.

“The Government needs to accelerate the adoption of recently announced reforms that will boost payments made into the pensions of low-paid workers and establish a clear route map to ensuring employers boost rock-bottom contribution rates over time.”

In his last Budget Chancellor Philip Hammond said he would scrap the £5,876 contribution threshold for lower earners - something Mr Sharp said would make a “huge difference” - although he did not say when this would happen.

Nigel Peaple of the Pensions and Lifetime Savings Association added that people should be saving more not less for their retirement.

“Everyone who saves in a workplace pension gets the benefit of employer contributions and favourable tax treatment,” he said.

“The ICAS calculations are based on the assumptions that the current regime of welfare benefits will still be in place 40 or 50 years’ from now. However, it is far from clear that this will be the case.

“While we think the Government should ensure the pensions regime should be worth paying into for all employees, we believe the focus of policy should be on ensuring that everyone will have an adequate income. For some income groups this may mean that contributions should be much higher than now.”