UK pensions system “not fit for purpose” - Pensions - News - Moneyfacts


UK pensions system “not fit for purpose”

UK pensions system “not fit for purpose”

Category: Pensions

Updated: 14/10/2013
First Published: 14/10/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A stark warning has been given by a leading UK pensions expert – the current pensions system is not fit for purpose, and at a time when retirement prospects are increasingly uncertain and state pensions are being cut, consumers face significant risk of a retirement shortfall.

In her "Pensions – Time for change" report, Dr Ros Altmann highlights the problem of inadequate pensions as most defined contribution schemes don't guarantee future income. Poor value annuities have come under the spotlight as well, with those that don't increase with inflation potentially exposing millions of pension savers to later life poverty.

An astonishing 60% of pension savers don't fully understand the risks of investing in defined contribution pensions, and that figure rises to 75% for those in the 18-24 age group – a key demographic for auto-enrolment – whilst a worrying two thirds of people are expected to not achieve their target retirement income.

Auto-enrolment itself, despite being designed to help ensure more people prepare for their retirement, may not be adequate, said Dr. Altmann. The report states that standard "default" options of most auto-enrolment schemes are not fit for purpose – as people face later retirement dates and a phasing out of work rather than a specific retirement event, a one-size-fits-all approach is no longer suitable.

The report argues that the current system is too inflexible and that many people will not, or should not, buy a standard annuity, with savers, pension providers and financial advisers alike being urged to consider alternative investment and retirement income solutions.

Dr Altmann wrote: "As retirement becomes a process rather than an event the need for different options for both investment and income streams is growing. Planning flexibly is ever more important and it will also be necessary to find approaches which offer better later life income prospects than can be provided by standard annuities.

"Defined contribution pensions are not fit for 21st century lives. New thinking on both pensions and retirement is urgently required and those who want the best chance of better incomes will need to plan carefully for the future."

What Next?

Find out more about auto-enrolment and how it affects you

Increase your retirement income by up to 40% - Use our online annuity planner and find out your options

Looking for a tax efficient investment opportunity? - Compare Stocks and Shares ISAs

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Pension funds defy uncertainty with strong returns

Economic uncertainty has been a persistent theme in recent months, but happily, not every area has been negatively impacted. Indeed, our latest figures show that the pension sector has bucked the trend and posted unexpectedly strong returns.

Do you know what a pension is?

Pensions are something we all need to get our heads round, and we’re continually told that it’s important to start saving into one from as early as possible. Yet new research suggests that this advice could be falling on deaf ears.

Record number of 100-year-olds

The chances of living to be over a hundred years old are going up, as figures from the ONS show that there were a record number of 14,570 centenarians in 2015, an increase of 65% over the last decade.