A report commissioned by the Institute of Directors has found that the UK’s “failing pension architecture” is driving thousands of workers away from pensions towards alternative options including ISA’s. ISA’s have been growing in popularity over the past five years, for example in 2007 the total amount saved into ISA accounts totalled £35.7 billion but this grew to £43.9 billion in 2009/10. At the same time contributions by individuals towards their pension funds reached £25.6 billion in 2007, but then dropped to £22.9 billion by 2009.
The report itself looked into a number of issues impacting on retirement in the UK including increasing longevity, debt dependence, lack of pension provision and low levels of savings. The report came out with a number of recommendations aimed at alleviating some of the issues raised. The principal conclusion was that the retirement age should be raised to 70 by 2044, which is sooner than under the government’s own plans which would see the retirement age rise to 68 in 2046. The government also plan to introduce a single and flat rate pension that is not means tested as well as to abolish pension credits.
Malcolm Small who wrote the report and is a pensions adviser from the IoD says that…”…traditional pensions are now outdated and increasingly unattractive. Society has changed but pension provision and Government policy have failed to keep up with the new challenge we face. 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. If we are to avoid millions of people facing poverty in old age, then we need to give them an attractive structure to save into, not simply order them to save. A simpler system, a higher state retirement age and a proper savings policy would at least provide the foundations for a new retirement savings architecture. We cannot go on like this, and if nothing is done then people will continue to walk away from pension saving.”
Experts believe part of the attraction towards ISA’s over pensions is that they are easily understood by the public but warn that ISA’s should not be considered an alternative for pension savings. Other issues that have been highlighted is the amount of jargon associated with pensions savings, as well as various high profile mis-selling scandals which have engendered mistrust from the public.