PensionsNov 19 2014

End of ‘Soviet’ pensions will boost saving: minister

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Next April’s move away from the existing “Soviet” pensions system offering a narrow range of choices will help to re-engage people in providing for their retirement and re-instigate a ‘savings culture’ in the UK, Treasury minister David Gauke has said today (19 November).

In a speech to the Westminster and City annuities and drawdown conference, Mr Gauke, financial secretary to the Treasury and the man driving the reforms through parliament, compared the current system to a “Soviet restaurant” with “just a narrow range of very similar choices.”

He stated that for years both policymakers and industry have been scratching their heads over people’s lack of engagement with retirement, but said this can be blamed on a lack of choices with which to engage.

He cited a major survey carried out by the National Association of Pension Funds in the wake of the announcements and published in May, which showed 28 per cent of workers were more likely to save into a pension following the Budget changes.

More recent surveys, such as one commissioned by Friends Life for FTAdviser in September which garnered in excess of 2,000 responses, have similarly suggested saving would increase but have pointed to differences in savings rates across age groups.

The exclusive Friends Life poll found more than one in four of those aged 34 and under said they would put more aside as a direct result of the reforms, while just 7 per cent of over 55s said they would increase saving.

Mr Gauke said: “We have geared these reforms, alongside the guidance guarantee allowing people access to impartial guidance, to re-engage people with their pensions and transform the culture of savings.

“It is inappropriate and counter-productive for the state to attempt to force a ‘one size fits all’ solution on people.”

However, Mr Gauke admitted the changes would not happen overnight and called upon the pensions industry to work with government to act as “the vital link” between parliament and savers.

With the Taxation of Pensions Bill currently at committee stage in the House of Commons Mr Gauke was unable to give any new information, but he suggested that the changes will result in new products tailored to customers’ changing needs in retirement.

“In addition to the progress the government is making with legislation, I know – and welcome – that there is an incredible amount of work going on across the industry to get ready for next April.

“I am relaxed about the fact that there is much that the industry can do which we cannot – and a lot that you know which, frankly, we don’t... I see the industry’s main role as taking the new flexible framework and using it to create a new system which delivers what consumers want.”

The comments come a day after Mr Gauke suggested in a committee hearing that the changes to at-retirement income options have been broadly mis-represented as being merely about people ‘cashing in’ their pension.

peter.walker@ft.com