Pension system 'too complicated'
The UK's "failing" pension system needs to be radically overhauled and simplified to make it as attractive to consumers as saving into Isas, a report from the Institute of Directors has revealed.
People have been paying around double the amount into Isas as they have into pensions, starkly highlighting which type of saving they prefer and showing how public faith in pensions is dwindling, the report argued. It said the current pension system has become complex and unattractive, having been bogged down by a "forest of regulation".
The amounts paid into Isas rose from £35.7 billion in 2007 to £43.9 billion in 2009-10, while employee and individual pension contributions peaked in 2007 at £25.6 billion and fell to £22.9 billion by 2009.
Malcolm Small, senior adviser on pensions policy at the institute and report author, said: "The fact that so many people are either not saving at all for retirement or moving to other investment vehicles such as Isas is a stark illustration that the current architecture has lost public confidence."
The report, titled Roadmap For Retirement Reform, called for the state retirement age to be raised to 70 more quickly, increasing it in stages to reach 70 in 2044 rather than the Government's plans to raise the age to 68 in 2046.
It argued that a higher state retirement age would encourage private saving for those wanting to end their working lives earlier. It called for the Government to develop a formal savings policy, saying that society has moved more towards a "debt culture" over the last 40 years.
The recommendations come before a landmark government initiative to tackle the pension savings crisis, beginning this autumn. Between nine and 10 million people will be automatically enrolled into schemes, something the Government hopes will lead to a greater savings culture.
A Department for Work and Pensions spokeswoman said: "We can't go on paying the state pension at an age set early in the last century, which is why we've already increased the state pension age and are looking at how it can be linked to longevity. We are moving ahead with our plans for a single, simple rate of state pension and are making sure people have a pension of their own."
Ros Altmann, director general of Saga said: "There's seems to be a crisis of confidence in our pension system. People are no longer willing to just put their hard-earned money into a 'locked box' where that money is taken away from them and they cannot access it for potentially a very long time.
"If Government wants to ensure people save for later life, auto-enrolment needs to focus on encouraging long-term savings in general, rather than just pensions in particular."