In a 44-page report, Pensions: Time for Change, commissioned by MetLife, Ms Altmann found that new products and new ways of thinking around pensions were needed urgently to prevent the so-called pensions gap from widening out of control in the coming decades.
She said: “As millions more workers are being automatically enrolled into defined contribution pension schemes, and will probably struggle to cope with pension risks, we need to develop new approaches for a new retirement reality.”
However, some of the standard investment options currently on offer are “not suitable for tomorrows workers”, especially if they are not going to retire at a pre-set date, but might continue working part time.
The report recommended that more built-in flexibility was necessary, with people being able to get better later life income streams than can currently be provided by standard annuities.
She also said that not everyone would benefit from standard drawdown - especially when factors such as interest rate changes are taken into account on products such as capped drawdown.
Therefore, the report also recommended that pensioners should have the chance to guarantee either their income or their capital. While some people may be prepared to pay for such guarantees, others may be willing to take some risk of loss - but this should “be their choice”.
The industry should also be looking to working on better insurance protections for pension funds, greater inflation protection on investments and planning for later life care, Ms Altmann added.
Facts and Figures
c.£500bn is invested in DC funds
3.6m workers are in a scheme
Flat-rate state pension will be worth £144 a week (in today’s money)
11m workers are expected to join a scheme under auto-enrolment
1m people are already working beyond 65
Source: MetLife report/ONS/NAPF
Phil Stevenson, chartered financial planner for Stalybridge-based Ark Financial Planning, said: “I absolutely agree with the recommendations made in this report. The at-retirement market needs more innovation.
“We’ve had annuities for ever, and drawdown for about 20 years - and not much more innovation otherwise. I wonder, bearing in mind the size of the retirement market and the fact it is going to keep growing, what is holding innovation back?
“Our industry is proactive in its thinking - so is it legislation or costs? I am sure costs would be an issue, as government, through various regulators, is all about driving costs down in the industry.”