State pensions in need of urgent reform

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Private pensions are in "urgent need" of improvement or millions of workers will not save enough for retirement, according to a review.

The Workplace Retirement Income Commission, led by Lord McFall, has warned that too many people are being short-changed by a "complex, costly and inefficient system".

It found that some 14 million private sector workers do not have a workplace pension scheme.

And even after auto-enrolment begins in 2012, between five and nine million people may still fall through the cracks and face a very poor old age

Those who are in a scheme are often charged too much for a service that has proved complicated and inefficient, the report found.

Former Treasury committee chair, Lord McFall, was commissioned to investigate the state of the sector by the National Association of Pension Funds (NAPF).

Unless improvements are made and private sectors get a better deal, people will not be able to save enough for retirement, the report said.

Lord McFall’s review revealed a number of "red flags" for the government, employers and individuals.

It highlighted "opaque" charging structures, people being "short-changed" by their annuity choice and schemes built up from separate employers being difficult to manage.

And it called for a cultural change to encourage saving.

The review did not look into public sector pensions, which are currently subject to plans for changes by the government.

Lord McFall said: "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.

"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."

A Department for Work and Pensions spokeswoman said it welcomed "all contributions" to the debate, and insisted that making the private pensions sector fit for purpose was "a priority for the government".

Shadow pensions minister Rachel Reeves said the government has "repeatedly ignored" many of the issues raised in the report during the progression of the Pensions Bill.

She said: "In fact, the government is making it more difficult for hard- working people to save for the future by cutting too far and too fast."

Maggie Craig, director of life and savings at the Association of British Insurers, said that the introduction of automatic enrolment next year will see "millions more people" starting to save into a pension.

"We should all be focused on the future, getting reforms already agreed right and kick-starting a savings culture in the UK," she said.

"Unfortunately this report focuses on the past, saying nothing that hasn't already been said before. The issues it raises should not be dismissed but are already on the agenda and being actively addressed.

"The shift to the new pensions world is already under way and it's time to look forward rather than back."