Disillusioned workers abandoning traditional pensions, claims IoD

MILLIONS of workers are abandoning saving in traditional pension schemes because the system is too complex and over-regulated, a report by the Institute of Directors (IoD) claims today .

As well as urging a simplification for the pensions system, the IoD called for the state retirement age to be raised to 70 by 2044 to help tackle the savings gap.

Malcolm Small, senior adviser on pensions policy at the IoD, said traditional pensions were “outdated and increasingly unattractive”. He said if the government did not act, individuals would continue to “walk away from pension saving”.

“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 individual savings accounts (Isas) is a stark illustration that the current architecture has lost public confidence,” said Small.

Colin Campbell, director of financial planning at Scottish financial advisor Innovate, also said an approach to pension planning which the tax benefits of pensions alongside greater flexibility - such as the ability to withdraw cash at times to help - would be much more beneficial to individuals.

Research published by the IoD showed the total paid into Isas has risen significantly, from £35.7 billion in 2007, to £43.9bn in 2009-10.

But over the same period employee and individual pension contributions peaked in 2007 at £25.6bn, and fell to £22.9bn by 2009. The IoD’s “Roadmap for Retirement Reform” report said the trend is continuing with payments into Isas jumping by almost £10bn to a total of £53.8bn in 2010-11.

It proposes a fresh approach to pensions better suited to current demographics, working practices and savings behaviour.

It suggests raising the state retirement age to 70 sooner than is currently planned, by raising the age to 68 in 2032, 69 in 2038 and 70 in 2044.

The IoD also calls for a single, flat-rate basic state pension and a radical reform of the pension framework which it said had become “hugely complex, unattractive and enmeshed in a forest of regulation”. It also believes the UK government needs to develop an over-arching policy to encourage savings.

John Lawson, head of pensions policy at Standard Life, pointed out that the IoD’s figures didn’t include the money paid into many pension schemes by employers and also doubted that consumers were funding Isas instead of pensions.

“The figures just indicate that people are choosing to diversify some of their personal savings and spreading their eggs across different vehicles which each have different advantages in terms of tax benefits or flexibility,” he said.