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* Experts see saving made compulsory in 2017 Pensions Review
* Cash-strapped workers opt out of voluntary schemes
* Australian, New Zealand mandatory schemes more effective
By Sarah Mortimer
LONDON, Jan 25 (Reuters) - Britain may soon have to forceworkers to start saving for retirement to cut a soaring pensionsbill set to reach 120 billion pounds in 20 years.
The government wants people to pay into their own pensionpots rather than rely on the state. But many employees, withlimited disposable income, have been reluctant to do this.
A scheme, introduced last October, automatically enrollsstaff 22 years or older into a company or national pension plan,but gives them a choice to opt out.
So if large numbers of workers pull out because they don'twant to pay or can't afford the contributions, the governmentmay decide to make membership compulsory in a Pension Review duein 2017.
"If opt-out rates are 50 percent or more, it is possible thegovernment will suggest removing opt-out altogether and makepension saving mandatory," Paul Gilbody, head of definedcontributions consultant relations at BlackRock InvestmentManagement, said in a report called "Auto-Enrolment for UKPension Schemes" by financial services research house Clear PathAnalysis
The government's current pension legislation is an attemptto tackle the country's ballooning pensions bill, set to hit 8.5percent of economic output by 2060, from 6.9 percent now.
Less than half of employees in Britain are putting moneyinto a workplace pension scheme, the lowest proportion sincerecords began in 1997, according to the Office of NationalStatistics.
Britain lags behind countries including Denmark, theNetherlands and Australia in global pension rankings. Itspension system ranks seventh out of 16 countries in a globalcomparison of national schemes, according to data fromconsulting firm Mercer. Its lowly ranking reflects an ageingpopulation, low investment returns and large government debt.
The Department of Work & Pensions told Reuters it had noplans to introduce mandatory private pension saving, but it didneed to compel millions more people to save.
The DWP said it expected 70 percent of people would stay ina workplace scheme and hoped to see 4.3 million savers inretirement schemes by May 2015 and between 6-9 million by 2018.
"One way or another, long-term pension contributions willincrease," Paul Macro, defined contribution retirement leader atMercer said. "The government are trying to stop people relyingon the state to support them in retirement."
DEADLINE
Under Britain's current so-called auto-enrolment system,employee and employer both contribute 1 percent of pay into apension. But this will gradually increase to 5 percent from theemployee and 3 percent from the employer by October 2018.
Someone earning 26,200 pounds ($41,400) a year, for example,would generate 4,667 pounds of employer contributions over 10years, based on the auto-enrolment pension contributionguidelines, according to estimates by fund manager FidelityWorldwide Investment.
Companies with more than 120,000 employees were required tostart auto-enrolment in the second half of last year. For smallfirms employing between 50-89 staff the deadline is July 2014.
Eleven big companies, including supermarket chains J.Sainsbury and WM Morrison have introduced thescheme. But other large firms have not done so yet.
A spokesman for Morrisons told Reuters that one-fifth oftheir qualifying workers, many within 20 years of retirement,had opted-out of the workplace pension scheme.
The spokesman said Morrisons supported government efforts toget people saving for retirement. "We have a large proportion ofour employees in their 40s and 50s and we want them to work onvoluntarily not because they can't afford to retire."
A manager at fashion retailer Next said: "I figuredI'm 27 and should start some kind of pension so I haven't optedout," she told Reuters. But she also said would pull out if thecontributions had a big impact on her monthly disposable income.
If Britain does make pension saving compulsory, it will joina long list of countries that have tried to cut their pensionsbill in this way.
New Zealand's KiwiSaver plan, launched in 2007, takescontributions from the government, employers and staff and locksthe savings away until people turn 65, but there are exceptionsfor those buying a first home or in cases of hardship.
In 2009, 35 percent of people were opting out of the NewZealand scheme but that has dropped to 6 percent in 2012, DavidKnox, senior partner of Mercer Consulting (Australia) Ltd, said.
Australia's government introduced a compulsory pensionsystem in 1992 which set up state-supported superannuationfunds, where employers are required to put in 9 percent of staffsalary. That is due to increase to 12 percent by 2020.
"People in Australia and New Zealand are now more engagedwith pension saving - there is general acceptance that you can'trely on the government to fully support you in retirement," Knoxsaid.
