By Rachel
Wait
The savings
industry seems to finally be waking up to the dangers of pension inflexibility,
with the Association of British Insurers (ABI) recognising the potential
unsuitability of pensions - something which is long overdue, according to Saga
director general Dr Ros Altmann.
ABI chief
Otto Thoresen has admitted that it would be better to use pension savings to
pay back student debts, rather than locking young people's money away in a
pension that has to remain untouched for years.
Dr Altmann
believes the pensions "locked box" isn't suitable for many of today's
workers and that the introduction of auto-enrolment this year needs to
recognise this.
The current
inflexible structure of pensions has several disadvantages. For a start, many
people are put off and will opt out of saving into a pension. Secondly, they
may need the money desperately in a few years' time if something were to happen
such as losing their home or illness, but they won't be able to get to it.
And thirdly,
older workers find their pension savings are penalised by means-tested benefits
to which they are entitled when they retire, meaning their pension savings
don't deliver value.
Dr Altmann
states it's time to recognise that pensions may be past their "sell
by" date and they are not the only savings vehicle worth having. But one
of the major drawbacks of not having a pension is that you lose out on employer
contributions.
This means
that if someone is using another form of savings they receive much poorer
value. They also usually miss out on tax relief.
"I would
urge the government to consider changing the design of pensions, and encouraging
or requiring employers to contribute to other forms of saving for their
staff," says Dr Altmann.
She adds that
the "pensions or nothing" policy will leave too many people with
nothing.
