Pension system changes are putting people off saving for their retirement, experts warn

George Osborne has proposed switching tax relief on retirement savings

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People are struggling to calculate how much they need to save for retirement, given a lack of clarity about what they can expect from the state pension scheme, according to the pensions company Aegon.

The new single-tier state pension set to come in next April will provide at least £151.25 a week to people entitled to a full pension, but Aegon says some 200,000 due to retire by 2017 will miss out on the full amount because their national insurance contributions are insufficient.

Duncan Jarrett, at Aegon UK, said many workers are unclear over how much they needed to save themselves. “We need to get better as an industry at highlighting to individuals how much they are due to receive, so they can then work out how much private pension they need to make up the gap between this and their aspirational income in retirement,” he said. According to Aegon, a man aged 65 would need a £280,000 pension pot to buy a £150-a-week income, while a woman retiring at 63 would have to pay slightly less, £273,000.

 “This is significantly more than the £63,815 those approaching retirement have on average in their private pension, highlighting just how fundamental the state pension is to people’s retirement plans,” Mr Jarrett said.

Aegon’s warning comes as many pension experts are growing concerned that people are being put off saving for their retirement because of the changes that successive governments are making to the pension system. Royal London’s chief executive, Phil Loney, last week warned against proposals by George Osborne, the Chancellor, to switch tax relief on retirement savings from the current upfront system to one more similar to the Isa regime that would let people withdraw their pensions tax free.

“There is no evidence that the promise of tax-free income, 25 to 30 years in the future, would be believed by the public given the volume of changes to the pension system over the last 25 years,” Mr Loney said.

He added that  it “could pose considerable risk to the Government’s aim of creating a savings culture”.

A survey of more than 200 financial advisers by Aegon, published today, found that just 4 per cent expected the current pension system to be in place 30 years from now.  Nearly 40 per cent predict a means test scheme that will give wealthier retirees smaller payouts.