David Prosser: Taking the shine off saving for pensions

Outlook The assault on pension saving continues. The Government declared open season on pension tax breaks in April's Budget, cutting tax relief for those earning more than £150,000 a year, a move many fear will be extended. Now it is the European Commission's turn: new rules coming into force across the EU from 2012, forcing insurers to set aside more capital to cover the potential cost of annuities, will result in savers retiring on 10 to 20 per cent less pension income than today according to Axa, one of the biggest providers in the market.

Little by little, pension products are losing their allure. Those who have access to occupational schemes are at least getting some help with saving for old age, though the days of guaranteed payouts are gone. But for everyone else, it is by no means clear that a personal or stakeholder pension is now the best way to save for old age.

These plans do, for now at least, still offer tax relief on contributions at your highest rate of marginal tax, as well as some tax-free cash on retirement. But they're inflexible, tying your money up until old age when most people will have to convert most of their savings into an annuity, a contract set to become up to a fifth less generous according to Axa.

Other savings vehicles, including tax-incentivised individual savings accounts (ISAs) come with no such restrictions – and often produce better performance than the pension funds run by big insurers.

Almost all the insurers that have reported half-year figures over the past 10 days have noted declining sales of individual pension products. That's down to the recession, but if the tax and regulatory environment continues to undermine the attractiveness of pensions, the decline will continue, whatever the prevailing economic winds.