UK Pensions – the future

Millions face pension poverty as ‘golden’ era ends
Up to 14 million workers will retire with pensions far smaller than
those enjoyed by their parents, a report warns today, as the “golden
generation” of retirement schemes comes to an end.
Pensioner, pension, senior man, elderly man, OAP, retired, retirement
A study found that the middle-classes face a severe drop in their
levels of income and quality of life when they retire Photo: ALAMY
James Hall

By James Hall, Consumer Affairs Editor

12:01AM BST 01 Aug 2011

Almost three quarters of private sector staff will be unable to
“adequately exist” when they retire due to a low level of savings and
the complex, costly and inefficient pensions system, the report

Many workers retiring after 2020 are told to expect a “bleak old age”,
even taking into account pension reforms that will force employees to
save for their retirement.

The grim financial outlook contrasts sharply with conditions enjoyed
by the recently retired. Figures show that the net income of
pensioners has grown by 47 per cent in real terms since 1999.

Today’s report, written by Lord McFall of Alcluith, the former
chairman of the Treasury select committee, warns that those who retire
in the coming decades will do so on significantly reduced pensions.

“A golden sunset is giving way to a bleak dawn,” said Lord McFall.

The report, from the independent Workplace Retirement Income
Commission, of which Lord McFall is chairman, comes as both the
private and public sectors are grappling with the cost of pensions
amid rising life expectancy.

The Department of Work and Pensions will publish statistics this week
suggesting that some children born today can expect to live to 120.

Lord McFall sets out 16 recommendations for creating a stronger, more
stable pensions system. The findings will be presented to Steve Webb,
the pensions minister.

The report lists a raft of grievances about pension provision. It
points out that the value of pensions has been hit by the global
recession, low investment returns, increases in household debt, drops
in real incomes and low interest rates.

It suggests that there is a lack of trust in the system and says that
private company pensions are often opaque and confusing for workers.

The report warns that workers must receive a better deal from their
pensions if they are to bother saving for retirement. It also calls
for an increase in minimum contributions to pension pots.

Last year, only 36 per cent of those aged between 16 and 64 were
actively contributing to a private pension, the report states. Over
the past 10 years, the proportion of men saving into a pension has
fallen from 49 per cent to 38 per cent, while for women it has dropped
from 36 per cent to 33 per cent. Lord McFall warned that although
millions of workers would be enrolled automatically into workplace
pension schemes from next year, up to nine million “may still fall
through the cracks” by opting out.

He said that a further five million workers did not earn enough to
qualify for the auto-enrolment system, meaning that a potential 14
million people faced having an inadequate pension to live off.

“In a rich nation such as ours, this is scandalous,” he added.

The report states: “The shape of workplace pensions is changing and
there seems to be little to suggest that trend will be reversed.”

The commission’s recommendations include the establishment of an
independent standing commission on pensions. It also suggests that
companies should offer workers free independent financial advice worth
up to £500 free of tax.

The Government has outraged the unions with plans to force public
sector workers to pay higher pension contributions. But these schemes
are substantially more valuable than the majority in the private
sector. Treasury figures show that a mid-level teacher retires with a
pension pot equivalent to £500,000 — 20 times more than the average
private sector worker.

Neil Carberry, director for employment at the CBI, broadly welcomed
the latest proposals. “This report rightly identifies the need to do
more to boost savings for retirement, and makes some helpful
recommendations about how to build a culture of saving in the UK,” he

“However, the commission’s proposal to consider increasing the minimum
compulsory pension contribution in 2017 is not the right answer. The
current plan to introduce a floor of eight per cent saving from next
year remains the best way to ensure more people who can afford to save
do so.”