If yesterday’s report into the state of our pensions is to be believed then the answer is ‘yes’ – unless some dramatic changes are made, and fast. But will the recommendations be enough to save our paltry pensions?
‘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 aren’t saving enough to secure a decent retirement.’
Not my words, but those of Lord McFall, leader of the Workplace Retirement Income Commission, which issued its final report yesterday. He also said:
‘People need to get more bang for their buck, or they’re not going to bother with a pension. Instead they’ll end up spending today, ignoring tomorrow, and scraping by in poverty on the state pension. We cannot stand by and let that happen. The complacency of many in the pensions industry is alarming.’
The future isn’t bright
The independent body paints an alarming picture of the state of things to come. It highlighted the contrast between defined benefit (or final salary) pension schemes, enjoyed by many who have already retired, with the less certain (and less generous) defined contribution schemes that most people in the private sector are offered today.
The report warned that many are paying in too little – and that 14 million aren’t saving for a pension at all!
The situation should improve in 2012 when those who don’t have a workplace pension are automatically enrolled into one. But even then, McFall is concerned that the minimum contribution level of 8% of your salary (from both you and your employer combined) still won’t be enough for retirement.
He is also worried about high investment charges, insisting that these should be capped at 1.5% for the first 10 years and 1% thereafter, and at the deal we get when we turn our pension pot into retirement income. Securing a better outcome here is something Which? has long supported.
Are you positive about your pension?
There are 16 recommendations in all – but generally the Commission’s message is clear- the time bomb is ticking loud and clear for those who have yet to retire.
Shopping around for the best rate is clearly beneficial, but only one third of people currently switch their pension provider. Our research suggests the difference between the best and the worst standard rates can be as much as 10% a year. For those with a medical condition the potential loss is even greater – an enhanced annuity might pay out 40% extra.
How do you feel about your pension arrangements? Are you confident you’re saving enough and do you know how much income you might get? If you’ve already retired, do you feel as if you’ve hit the jackpot – or is talk of a ‘golden generation’ over exaggeration?
Lord McFall has thrown down a challenge to government and the pension industry – many of our futures depend on whether they will they be up to meeting the challenge.
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