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UK pension rules are outdated, says the Institute of Directors

Research finds growth in ISAs and a fall in pensions.

 

Failures in the UK’s pension architecture are causing millions to abandon pension saving entirely, preferring to trust other vehicles such as individual savings accounts (ISAs), according to a new report by the Institute of Directors (IoD), in association with Capita Hartshead and Lucida.

The report, entitled Roadmap for Retirement Reform, was written by Malcolm Small, senior adviser on pensions policy and pensions expert at the IoD.

According to Small, traditional pensions are now “outdated”. He said:

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.

The amounts paid into ISAs increased from £35.7bn in 2007 to £43.9bn in 2009-2010, while employee and individual pension contributions peaked in 2007 at £25.6bn and fell to £22.9bn by 2009. 

This trend seems likely to continue or even accelerate, with payments into ISAs jumping by almost £10bn to a total of £53.8bn in 2010-2011, said the IoD.

Small added:

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.

Margaret Snowdon, operations director at Lucida, said “later retirement and auto enrolment” are “steps in the right direction” but warns that “without significant change, the retirement landscape 20 years from now will be bleak”. “We supported the IoD’s initial work in 2009, as we felt strongly that people need help to save for retirement,” she said. “Less than three years later, the need for positive action is even greater.”