New approach urged 
with pension schemes

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FORCING people to join pensions may not significantly increase their confidence in company schemes, according to over-50s organisation Saga.

Instead, it has called for a new approach to saving for retirement, recommending that policy makers become more “in tune” with what people want and how they would prefer to set money aside for later life.

The company was responding to the Government’s auto-enrolment plans, which will see millions of employees automatically signed up to company pension schemes from October 1.

The Government said its figures show more than half a million more people will have signed up to pension schemes by the end of the year, with more to follow as auto-enrolment is rolled out to more businesses over the next five years.

The statistics were welcomed by the CBI, whose director for employment, Neil Carberry, said: “As the UK’s ageing population continues to increase, we need more people to start recognising the value of saving for retire- ment.

“Auto-enrolment will help rebuild a positive savings culture in the workplace and encourage people to take control of their retirement plans.

“It will help the country adapt to the happy challenge of rising lifespans gradually over time, and avoid a future pension funding crisis.”

But Dr Ros Altmann, director-general of Saga, said auto-enrolment would not solve the pension crisis, which has seen membership of private pension schemes fall to its lowest level since 1953.

She said: “With private sector occupational pension saving at record lows, we can try to force people back into the pension product, or we can try to recognise the need to give pensions an image make-over.

“More flexibility, less complexity and a state pension system that does not undermine private savings would be a great start.

“Policy makers should listen to the people and make pensions more user-friendly if we really want to revolutionise long-term saving.”

Dr Altmann highlighted a series of problems with pensions which she said should be addressed before workers were automatically drawn into private schemes.

Among them was the inflexibility of most schemes, preventing people from using the money at a time when they need it before retirement, such as to buy a home, and the fact that many people on low incomes would be worse off with private pensions than if they relied on state pensions.

She also warned over the proposed reforms to the state pension, which would see a new £140 per week flat rate introduced without means testing, but which she said the Government had got “cold feet” over.

“If the state pension reforms do not go ahead, it will be disingenuous for people to promote pension scheme membership to low earners at risk of losing their private pension in retirement means tests,” Dr Altmann add- ed.

“Of course, if we do provide risk warnings, then many of the target group will opt out. Far better to make saving safe, rather than luring people into pension schemes that may not be suitable for them.”

Saga has now called for a radical re-think of pensions, even suggesting that the term itself could be used for state money alone and that other schemes should be re-branded to make them more appealing to employees, with names such as Lifetime Funding, Tomorrow’s Money or More for Later.

It has also suggested offering rewards to those who join schemes, including a lottery with a top prize of £1m.

But the key to increasing planning for retirement, according to Saga, is to ensure that people feel confident they will be better off with whichever scheme they choose, whether it is a pension, an ISA or investment.

Dr Altmann added: “It is essential that we make it safe for people to save in a pension fund, if we are automatically enrolling them into the product.

“So, either we must change the way the state benefit system works to allow them to keep their private pension income, or we must warn them fairly of the risks that they may be better saving in a different form.

“The risk of pension mis-selling, or mis-buying, in the current system is a real danger for the future.”