The UK’s new pension saving system is not “fit for purpose” at a time when retirement prospects in the UK are more uncertain than ever and state pensions are being slashed, a leading report warns today.
The alert from Ros Altmann, a former Government advisor on pensions, comes alongside research from protection provider MetLife which shows 60 per cent of pension savers do not understand or know the risks they face in defined contribution pensions, where both the employee and the employer pay contributions each month.
The Office of Fair Trading last month warned that many defined contribution pension schemes offer poor value for money and called on the Pensions Regulator and the insurance body the Association of British Insurers to track down the schemes that offer poor value.
The Government plans to revitalise retirement saving through auto-enrolment, which aims at recruiting around 11 million new pensions savers and is designed to offset the abolition of an earnings-related element to future state pensions.
But Dr Altmann warns: “Defined contribution pensions are not fit for 21st century lives. New thinking on both pensions and retirement is urgently required . Those who want the best chance of better incomes will need to plan carefully for the future.”
The proportion of those who unaware or confused by the risks of defined contribution pensions is higher among people aged 18 to 24, according to the MetLife study, at 75 per cent from the 60 per cent overall average. Meanwhile, a survey of financial advisers shows they believe only a third of their clients will manage to hit their target retirement income, while less than 10 per cent of the advisers would themselves purchase a standard annuity.