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12/10/2004
Pensions crisis could mean retirement poverty for millions
A massive deficit in the pensions savings could leave nine million people in poverty by the time they retire, according to a report by the Independent Pensions Commission.
The commission's first report, ‘Pensions: Challenges and Choices’, on the adequacy of pension provision and saving in the UK found that, if retirement age did not rise, around £57 billion would have to be raised through other means to plug the pensions gap.
The report says that a combination of higher taxes/national Insurance contributions, higher savings/later average retirement age will be required to resolve the crisis.
The commission highlighted four barriers to the success of a voluntary pensions saving system – most people do not make ‘rational’ decisions about pension saving; the cost of advice significantly reduces the return on saving; the UK pensions system is extremely complex, leading to confusion and mistrust; and means-testing increases complexity and for some people reduces the incentives to save which the tax system provides.
This means that unless new government initiatives can make a major difference to behaviour it is unlikely that the present voluntary private system combined with the present state system will solve the problem of inadequate pension saving, the report said.
The pension issue has been gradually deteriorating for at least 20 years, but the impact of the baby boom generation, a failure to anticipate the scale of life expectancy increases and the irrational equity market exuberance of the 1980s and 1990s all contrived to cloak the scale of the problem, the commission said.
The commission slammed the piecemeal pension policies of the past, and called for a "comprehensive approach" which can be sustained over the long-term.
Speaking today Adair Turner, Chairman of the Commission, said: "We must now make adjustments which we should ideally have begun 20 to 30 years ago. And to get policy right we need to look comprehensively at all aspects of the problem. Too often in the past, under successive governments, pension policy has addressed specific problems without a clear overall context. This has had unintended and adverse consequences.”
The commission will publish its own recommendations on the way forward in Autumn 2005.
(gmcg/mb)
The commission's first report, ‘Pensions: Challenges and Choices’, on the adequacy of pension provision and saving in the UK found that, if retirement age did not rise, around £57 billion would have to be raised through other means to plug the pensions gap.
The report says that a combination of higher taxes/national Insurance contributions, higher savings/later average retirement age will be required to resolve the crisis.
The commission highlighted four barriers to the success of a voluntary pensions saving system – most people do not make ‘rational’ decisions about pension saving; the cost of advice significantly reduces the return on saving; the UK pensions system is extremely complex, leading to confusion and mistrust; and means-testing increases complexity and for some people reduces the incentives to save which the tax system provides.
This means that unless new government initiatives can make a major difference to behaviour it is unlikely that the present voluntary private system combined with the present state system will solve the problem of inadequate pension saving, the report said.
The pension issue has been gradually deteriorating for at least 20 years, but the impact of the baby boom generation, a failure to anticipate the scale of life expectancy increases and the irrational equity market exuberance of the 1980s and 1990s all contrived to cloak the scale of the problem, the commission said.
The commission slammed the piecemeal pension policies of the past, and called for a "comprehensive approach" which can be sustained over the long-term.
Speaking today Adair Turner, Chairman of the Commission, said: "We must now make adjustments which we should ideally have begun 20 to 30 years ago. And to get policy right we need to look comprehensively at all aspects of the problem. Too often in the past, under successive governments, pension policy has addressed specific problems without a clear overall context. This has had unintended and adverse consequences.”
The commission will publish its own recommendations on the way forward in Autumn 2005.
(gmcg/mb)
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