UK pension system not fit for purpose

The UK pension saving system is out of date and not fit for purpose at a time when retirement prospects in the UK are more uncertain than ever, according to a report by independent pensions expert Dr Ros Altmann (pictured) and sponsored by MetLife UK.

The Pensions – time for change report warned that, despite auto-enrolment’s aim to create around 11 million new pension savers in the UK, most will be contributing to pension schemes that do not guarantee future pension incomes, which will leave employees at the mercy of markets and annuity rates.

The report called for new thinking and innovation in investment products and retirement income options. It stated that increased flexibility, which recognises the changes in working life and the increased uncertainty of investment markets, is required.

Dr Altmann also highlighted the risks of relying on annuities, which do not increase with inflation over time. She compared the options for retirement income and explained why considering guaranteeing pensions can be an important part of retirement income decisions. 

She wrote: “Defined contribution pensions are not fit for 21st century lives. New thinking on both pensions and retirement is urgently required and those who want the best chance of better incomes will need to plan carefully for the future.

“As retirement becomes a process rather than an event, the need for different options for both investment and income streams is growing. Planning flexibly is ever more important and it will also be necessary to find approaches that offer better later life income prospects than can be provided by standard annuities.

Dominic Grinstead, managing director at MetLife UK, said: “The need for innovation in retirement planning is vital and advice is an essential part.

“Dr Altmann’s report is an important contribution to the debate on the future of UK pension provision and MetLife is committed to playing its part.”