Forum Brief: Pension choice

People are paralysed by choice over pensions, TUC general secretary Brendan Barber has claimed. There is an urgent need, he said, to simplify the state system so contributions by employers and employees - which the TUC wants made compulsory - can be built on a sound base.

Government Response: Department for Work and Pensions

A spokesman for the DWP said: "Our informed choice pilot scheme involves getting better information to people over the choices available to them with regard to pensions. We agree information needs to be easier to understand and more specific to individual circumstances. We are currently working with the industry and pension providers to ensure people get easier access to pension information."

Forum Response: Consumers Association

Doug Taylor, of the Consumers Association said: "Financial services products are complex and consumers are often intimidated and confused by this complexity. Consumers’ Association has long championed the need for an independent National Financial Advice Network to provide consumers with basic financial health checks, and this service could in part be provided through the workplace. We see this as a cornerstone to the development of a future National pensions strategy. It is through independent advice giving, not linked to any sales process, that confidence can begin to be restored.

"Brendan Barber is right to identify the complexity of the current system of pension provision and the intimidation felt by individuals. To simplify the pensions system we would like to see the creation of Personal Retirement Accounts so that all individual entitlements can be tracked by a consumer. It must however be recognised that the population can not be treated as homogeneous, and the inequality of income in society will dictate how each individual is likely to interact with the pensions industry.

"There is a real pensions crisis caused by demographic pressures and consumer distrust and it is by appreciating the inherent failings in current that we can design the best solutions for the future;

"Under funding is the major problem with insufficient saving being made – the basic State pension is falling in value, employers are cutting contributions to pension schemes and the shifted responsibility to the individual is not being met by the individual.

"Reliance on the retail model based on stock market volatility to provide a consistent welfare product like a pension is fundamentally flawed.

"Consumer trust and confidence is shattered as a result of a series of financial services scandals and mis-selling combined with poor stock market returns.

"Consumer awareness of their personal position is low. Our research shows that consumers expect to be able to retire early on good income despite the lack of provision that they are making to fund that.

"Consumers’ Association believes there is a way to improve the situation. We suggest steps to deliver a fair, sustainable and more secure pension for all;

"Compulsory pension funding shared between employers and employees is needed to build on the state pension. This is the most efficient and effective way to meet future generational needs.

"The basic state pension needs to be improved and supplemented with a pre – funded additional pension invested via new collective-based pension schemes.

"We need a range of new pension schemes based upon a collective approach.

"Contracting out should be abolished or permitted only where demonstrably better benefits are available.

"To deliver this long-term vision Consumers’ Association believes that we need a new Financial Futures Commission to oversee the formulation and implementation of pensions policy and reduce the impact of short – term political decisions upsetting ling – term pensions policy planning.

"A national Financial Advice Network is needed to provide generic financial advice, free to individuals, to assist with their own financial planning.   

"The reform of the pensions system is one of the key public policy challenges facing the UK. Any future decisions need to put the provision of pensions in the context of welfare provision rather than the context of unconstrained market delivery. In this context the industry lobby to increase the price cap on stakeholder products, including pensions, should be treated as a most retrograde step which will worsen rather than improve the pensions landscape."

Forum Response: Investment Management Association