July 23 2014 Latest news:
Ed Foss, Senior writer
Tuesday, July 5, 2011
The current state pension system is a confusing “dog’s breakfast” and a simplified set up in the long-term is needed to help encourage millions of young workers to save rather than spend.
With a well documented countrywide lack of pensions saving among young people threatening to turn into a crisis in future decades, efforts have been made for years to persuade more people to invest in private pensions.
Success has been limited for a host of reasons. But one of the key problems identified by financial experts is the sheer complexity of the current system, often exacerbated by political policy wrangling and a belief that the location of the goal posts will continually change.
And so making the state pension simpler could spur millions of younger people to save more towards their retirement, research for the National Association of Pension Funds (NAPF) has shown.
Approximately half of those aged between 18 and 34, which equates to more than six million people, would save more for their old age if they knew how much state pension they would get.
Younger people felt much more strongly than older age groups about a better state pension.
Joanne Segars, chief executive of the NAPF, said: “They’re keen to take more control of their retirement, but they need a clearer state pension foundation on which they can build their own nest eggs.
“If they could see the state offer might not be enough, they’d be more inclined to get their own savings sorted, partly to avoid working past an increasing retirement age.
“The current system is a dog’s breakfast and makes it impossible for people to plan their future. Even pensions experts struggle to work out what they’ll get, so what hope does Joe Public have?
“It can be a big ask to get someone in their 20s thinking 40 years ahead. The proposed reform of the system would be a huge improvement, but changes must stay in place over the long term.
“We have to get younger people switched on to their financial future. Starting a pension early can make a massive difference to the final size of a retirement pot. A clearer state pension will bring more young people into the habit of saving.”
The government is thinking of simplifying the system and introducing a more generous flat-rate pension guaranteeing the equivalent of £140 a week in today’s money, although recent headlines have focused more on the state of women’s pensions as retirement ages are set to increase to 66 for both genders by 2020.
Mike Morrison, Axa Wealth’s head of pensions development, said: “A lot has been done to inform and educate the country on the importance of long-term savings, and there is evidence that the message is getting through.
“However, while stories on pensions are constantly in the media, successive governments have presided over increasing layers of legislation designed to simplify pensions but for the average consumer this has complicated matters further.
“To address this growing social problem there should be greater openness from all parties, including policy makers. The government must consider how it can best speak plainly and clearly about what the state will provide, and what people will need to save on top of that if they are to have sufficient income in retirement, before it is too late to plan.
“A more generous and simplified state pension for all consumers is the only way to remove the uncertainty clearly felt by many and to create better transparency for people across the board.”