Steve Webb, the minister for pensions has suggested that pension schemes should offer insurance on pension savings to protect consumers against fluctuations in the market. His suggestion comes out of fear that many people may be put off from saving for later in life as there seems to be less and less guarantee that money is safe. This article will take a brief look at how such insurance would be implemented and why Webb thinks it is a good idea.
Why Introduce It?
The main reason Webb has suggested insurance on pensions is because of statistics indicating that an increasing number of people are turning away from pensions as a form of saving. Official figures have shown that the number of people in work-place pension schemes has fallen below 50% for the first time in 15 years. Only 48% of employees were in a scheme, compared with 55% in 1997. Furthermore, a study conducted by the National Association of Pension Funds stated that 54% of workers were not confident in pension schemes compared with other ways of saving.
Speaking about pensions Webb said, "I am convinced people have a huge appetite for certainty about their pension savings and this demand will drive the shape of pension provision in the future....I want industry to innovate and think hard about this.”
Claims have been made that people are reluctant to contribute to pensions during a time of recession where household income is under strain.
The government are due to automatically enrol between 9-10 million people into pension schemes in October, under a scheme announced four years previously. Webb then sees this as the perfect time to innovate the pension world stating,
"With the dawn of automatic enrolment the market is growing – so now is the time for the pensions industry to look at the market gap in relation to affordable guarantees, and provide the products consumers are seeking."
Although the government are hoping to boost pension take-up with auto-enrolment almost four out of every ten people said they would struggle to pay into the scheme, with about a third estimated to opt out after they have been enrolled.
Webb hopes that introducing new pension products which involve insurance will make pensions appealing once more.
Retiring in the UK, like anywhere else, involves a lot of financial planning especially for those due to retire relatively soon in times of recession. Although some people are turning away from pensions, the advantages of a pension plan aren’t totally obsolete. If you’re considering your financial options for the future you may want to speak with an independent financial advisor to make the best decisions possible.