Pensions not the answer to pensioners’ crisis

Pensions alone cannot solve a looming pensioners' crisis caused by the baby boomer effect which from 2010 is set to drive a huge growth in the UK population aged over 65.

This was the stark warning given by leading pensions expert Dr Ros Altmann at the Tax Incentivised Savings Association (TISA) Retirement Savings Challenge conference.

Dr Altmann argued that a flat-rate and fair to all state pension along with changes to allow lifetime savings to be a linked supplement to, rather than a replacement for, later life income must form the core of the proposed reform of 21st Century pensions. This would be essential in order to restore confidence and encourage the consumer to focus on their financial needs in retirement.

"The government's current pension reforms are like re-arranging the chairs on The Titanic and will not deliver the radical changes necessary" Dr Altmann said. "Indeed, as currently designed, initiatives like Personal Accounts could make pensions provision worse by levelling down employers' contributions to the minimum 3% level for example.

"We need a policy that looks further ahead than the short-term political horizon to create an environment for people to save towards their retirement using all available savings vehicles, but in a joined-up, coordinated manner.

"Continuing to expect people to contribute all their retirement savings over many years into a ‘locked box' is no longer appropriate. Changing financial demands on people, improved life expectancy and more flexible working practices particularly in later life mean we need a more relevant system."

Moving to such a system would throw up challenges for the savings industry which would need to create attractive mass-market savings vehicles. However Dr Altmann contended that this radical re-think of UK pensions could lead the way in showing other countries how to overcome their pensions crisis.