Insurers to probe pension challenge
Insurers are undertaking the most wide-ranging investigation there has been into the huge challenge the country faces in paying for its ageing population.
The Association of British Insurers (ABI) wants to hear from consumers and groups representing them, pension experts, think tanks, health bodies, unions and politicians on how a new approach which is "fit for the future" can be found as the UK grapples with the rising cost of life after work.
With nearly 11 million people in the UK already aged over 65 and this figure expected to surge to 16 million in the next 20 years, many people will spend more time in retirement than they did paying off their mortgage.
The ABI said the probe will be the most comprehensive consultation on the UK's retirement needs that there has been.
Otto Thoresen, ABI director general, said "radical reform" is needed and the pensions industry is part of a much larger group of bodies which will need to cater for changing retirement needs.
The probe will look at how effectively pension products cater for people's needs as well as throwing the spotlight on the UK's "chronic under-saving culture".
It will look at the challenge of how taxpayers are expected to fund a growing number of retirees and how low interest rates are having an eroding impact on retirement incomes.
A spokesman for the ABI said the investigation will look at the "conundrum" of how households are being asked to pay more towards their old age while their incomes are still being squeezed.
Another aspect the review will cover is the increased burden rising longevity puts on the healthcare system, with around one in six (16%) people aged over 85 going into a care home. The ABI said figures have shown that the average annual cost of nursing home care is £38,000.
Mr Thoresen said: "How we pay for life after work is one of the key challenges facing our society, and the reason we have launched this wide-ranging review.
"Radical reform is needed to ensure people retiring today and future generations avoid a retirement of struggling to make ends meet.
"Reform has to be holistic. The pensions industry has a key role to play in meeting people's changing retirement needs but we are part of a much bigger picture."
A survey on the ABI's website will ask people about their knowledge of state benefits, how much money they think they need to live on in retirement, their level of knowledge about different financial options and whether they think they will be better or worse off financially than their parents.
The spokesman said that while the ABI does not expect to have all the answers to the issues raised: "Somebody has got to ask the questions. We need to kick-start the debate."
The consultation will close on December 20 and the issues raised will be discussed in a series of workshops before a final report is expected to be published next spring.
Huw Evans, ABI's director of policy, called for a "new approach".
He said: "Rising life expectancy, a sustained low interest rate environment and our culture of under-saving means that our current approach to retirement is unlikely to be fit for the future.
"We need to think about what changes may be needed to meet the needs of the savers of today when they face retirement."
The Government's landmark scheme to automatically place people into workplace pensions launched just over a year ago and up to nine million more people are expected to be saving for the first time or saving more for their retirement as the initiative rolls out.
But concerns have been raised that many people and employers do not understand much about pensions and some savers could be placed into high-charging schemes which could wipe tens of thousands of pounds off the eventual size of their retirement income.
Ministers recently moved to tackle concerns that some of schemes have ''rip-off'' charges and it is considering imposing a charge cap.
The Government is also looking into options for a new category of pension called a defined ambition scheme, which would create a "middle ground" in the pensions market by sharing the risks of retirement saving more equally between the worker and the employer.
At present, pension savers are generally either in a scheme where the employer bears the responsibility for the level of pension income the employee receives, such as a final salary pension, or one where the pension saver takes on the risk and the outcome depends on factors such as what sort of deal they get when they convert the pension pot they have built up into a retirement income.
The consumer survey is being placed on the ABI's website at www.abi.org.uk/retirementsurvey.