Press Release Summary = This report discusses the issues, changes and proposals affecting the pensions industry, as well as key market trends. It also examines consumer attitudes towards pensions and saving, as revealed by research carried out exclusively for this Market Assessment.
Press Release Body = Pensions Market Assessment 2006
This report discusses the issues, changes and proposals affecting the pensions industry, as well as key market trends. It also examines consumer attitudes towards pensions and saving, as revealed by research carried out exclusively for this Market Assessment.
The Pensions Commission proposes raising the qualifying age for the state pension to 66 between 2020 and 2030, and to 67 between 2030 and 2040 and 68 by 2050. The Commission also proposes an Enhanced State Pension (ESP) to replace the current basic state pension and means-tested benefits by 2030; linking the state pension to average earnings rather than to prices; and a National Pensions Saving Scheme (NPSS) into which anyone starting a new job would be enrolled automatically. The proposals are on top of the big pension changes that come into force on \'A\' Day, 6th April 2006. Savers with pension funds of up to £15,000 will be able to take the whole amount as cash. The changes also include a lifetime limit for tax-privileged pension savings, of £1.5m in 2006/2007. Employees will be able to carry on working while drawing an occupational pension from their organisation.
The Pension Protection Fund (PPF), already in place, should restore confidence in occupational pensions. Annual contributions for personal pensions, on the other hand, are static. Almost half of all women who are neither students nor retired are not in any sort of pension scheme.
Two companies dominate the pensions market. Aviva leads the individual pensions sector. Prudential leads the sector for all other types of pension.
Pensions are supposed to be a long-term commitment, but the expected commitment conflicts with many people\'s life experience of see-saw incomes, periods out of work because of study or family commitments, and changing financial priorities. New survey reveals that more than half the interviewees said they could not afford to save any more money than they do at present. Only a third of respondents stated that they had cut their spending so that they could put money aside for the future - yet more than seven in ten agreed that the state pension would not support them comfortably. The proportion of interviewees who thought that the qualifying age for receiving the state pension should be raised to 70 was still small, but had doubled to 11% from 5% in 2004.
The biggest future pension problems are likely to face `middle Britain\' - those who are too poor to save substantial amounts, but who are not poor enough to receive means-tested benefits. Equity release is the apparent saviour for home-owning middle Britain: fiscal and national stability factors that protect the property market also persuade many individuals to regard their home as a `cash cow\' that can be milked in future. Equity release is set to assume ever greater importance in pension planning. Insuring against the risks of equity release is an expanding opportunity for the reinsurance industry.
Public pressure could bring about a higher state pension and an end to means testing for pensions, at the cost of higher general taxation - but energy shortages and damaging climatic changes may limit the nation\'s capacity to meet the Government\'s public spending commitments, including the costs of supporting the elderly.
Increased personal saving for future pensions is difficult for several reasons: most people cannot afford to save significantly more; there is a huge consumer debt barrier; and businesses are struggling to cope with the downward cost pressures imposed by the World Trade Organization\'s (WTO\'s) drive towards open global markets.
Pensions policy needs to encourage later retirement; ensure a higher basic pension; and remove the complexities of means testing and the disincentive to saving that means testing fosters. Later retirement will be hard to achieve because of a shortage of suitable jobs for older workers. A higher rate of tax for top earners may be essential to help fund a better basic pension. A good case can be made for offering one rate of tax relief on all pension contributions. Increasing the tax take could well be better for the economy than encouraging individuals to save more. Individuals can put their savings wherever they like, whereas tax revenues can be deployed to support specific national priorities, including the protection of jobs.