O 11m new pension savers risk slipping into poverty in old age due to poorly designed government-backed saving schemes, a major new report out today claims.
Auto-enrolment schemes, which are currently being rolled out across the country, aim to recruit millions of young workers into defined contribution (DC) pensions, letting them invest in stocks and bonds in the hope of turning enough of a profit to retire on in future.
The study, written by top pension consultant Ros Altmann, said such pensions were not fit for savers in the 21st century, and need to be radically overhauled to help people make better investment choices.
“Current pensions are so old-fashioned they don’t fit with people’s lives,” Altmann said. “It’s all geared towards buying annuities, which are terrible value.”
It comes as research conducted for the study showed 60 per cent of respondents said they were unaware of the risks of DC pensions or did not understand them.
A further poll of financial advisers also found about two-thirds thought their clients would fail to save as much cash as they had hoped for retirement.
The government launched a push to get people saving more for retirement last year when it put laws in place forcing workers and companies to contribute to a pension.
But Altmann said the saving schemes were too geared towards people who are set to retire at 65, which is unlikely to happen in future as the retirement age rises.