Workers facing a ‘bleak old age’

31 July 2011 Last updated at 20:38 ET

Lord McFall was examining private sector pension schemes

Up to nine million people face a “bleak old age” because they are falling through the cracks of private sector pension provision, a review suggests.

This accounted for a third of all the current UK workforce, the Workplace Retirement Income Commission concluded.

Its report described critical problems in the current system, which was “complex, costly and inefficient”.

It argued that many people were not saving enough for their retirement years and charges were too opaque.

Lord McFall, the former chairman of the Treasury Committee, was commissioned to investigate the state of the sector by the National Association of Pension Funds (NAPF).

The pensions landscape has been changing as people in the UK are living longer and many occupational pension schemes have become less generous.

The review did not study public sector pensions, which are subject to plans for significant changes by the government.

‘Complacency’

Lord McFall’s review, which was funded by, but independent of, the NAPF, argued that workers would not bother to save for a pension unless they were getting a better deal.

“Too many people are stuck in a complex, costly and inefficient system that relegates the consumer’s interest to second place. On top of that, they simply are not saving enough to secure a decent retirement,” he said.

“People need to get more bang for their buck or they are not going to bother with a pension. Instead, they will end up spending today, ignoring tomorrow and scraping by in poverty on the state pension. The complacency of many in the pensions industry is alarming.”

Changes, being introduced in 2012, will see workers automatically enrolled into a pension scheme, unless they earn a very low wage or opt out themselves.

The review said that the government should consider increasing the minimum amount that is contributed by these workers. It also made recommendations about:

• Charges – which it claimed were too opaque. It said bigger, lower-cost pension schemes should be able to operate
• Annuities – which it said should be more flexible. It suggested people should be directed to an annuity price comparison
• Risk – which should be mitigated for those in defined contribution schemes, according to the review
• Cultural change – which should encourage saving
• Stability – with a commission set up to oversee long-term pension policy

The government’s coalition document pledged to “reinvigorate occupational pensions”. The NAPF estimated that 19 million people out of the total workforce of 28 million were in the private sector.

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