The government must not "shy away" from introducing auto-escalation of auto-enrolled pension contributions, despite the grim economic outlook, the International Longevity Centre - UK has argued.
In a post-Autumn Statement report, the think tank predicted household savings rates would not pick up until at least 2022, despite the introduction of automatic enrollment.
The report found that by 2022, economic output per person would be more than 25 per cent less than we would have expected it to be before the 2008 financial crisis.
Real wages, meanwhile, would be £11,600, or 31 per cent, less than pre-crisis projections.
It also predicted interest rates would remain low.
All of these factors would put pressure on household savings.
The report stated: "Against the economic picture painted by the OBR, of falling consumption growth, and stagnating real wages, the temptation for government to shy away from auto-escalation may rise."
But this, the think tank stated, would be a mistake.
"In the context of the auto-enrollment review, the government need to think carefully about how to square the circle and deliver savings policy which is aligned to its economic and fiscal objectives."
It said this was the only way we to achieve sustainable growth.
Ben Franklin, head of economics at ILC-UK, said: “The picture painted by the Autumn Statement is bad economic news for savers, but this does not mean the government should shy away from its long run objective of supporting private savings through automatic enrollment."
The Department for Work & Pensions will conduct a review of auto-enrollment in 2017, with more details expected to come out in December.
One measure the government may explore is auto-escalation, whereby contribution rates are incrementally increased on an annual basis, rather than remaining at the same level (currently 1 per cent of wages from the employer and 1 per cent from the employee).
james.fernyhough@ft.com
