Independent pension analyst Dr Ros Altmann says a total rethink is needed on the approach to retirement and retirement saving in order to restore fairness to the system and reinvigorate pension savings.
Speaking at the Money Marketing Retirement Planning Summit in Dublin, she said tinkering with the pension system would not be sufficient to correct the current under-provision of retirement savings.
Altmann said: “Other than the really wealthy, just saving more is not enough. We have to rethink pensions and also retirement as everyone is living longer.”
She said what we call pension saving is actually two separate systems. The first is a basic welfare provision, usually provided by the state, and the second is discretionary savings made by or on behalf of an individual.
She argued that splitting the two elements of retirement income would give people greater clarity of what income they could expect in retirement and encourage people to take responsibility for their own savings.
She said: “What about a radical reform where the state pays you a basic minimum? You can argue about the age they pay it from but that is the state pension, that is the social welfare level and then you are on your own, whatever else you do is up to you.
“Then you do not have the means test, you have fairness between generations, between men and women and you do not have to buy an annuity, it is entirely up to them. People will either have to save more or work longer if they want more than the state minimum.”
She also said people need to change their attitude to retirement and this could provide opportunities for advisers.
Altmann said: “Retirement can become a new phase of life that previous generations did not have. This is a great message, you are living longer, you are living healthier and working lives are easier – it is not physical labour the whole time, so you can keep working, cut down gradually rather than suddenly stopping. What I call bonus years, a whole new phase of life. You have your education, you have your working life and then you have your part-time work, for 10-20 years or however long it is going to be.
“Advisers would have the opportunity to help clients with their lifestyle planning. It will not be just about products, it will also beabout the whole attitude to retirement.”