The Government must listen to the industry when it comes to pension reform, particularly when it comes to recommendations from the Centre for Policy Studies, says London & Colonial.

The pensions specialist said the report, Don't let this crisis go to waste: a simple and affordable way of increasing retirement income, makes sound recommendations, including a proposal that savers be able to bequeath their unused pension assets to third parties without the concern of inheritance tax (IHT) liability, provided that the assets go into a retirement savings scheme. The idea is to encourage wealth to filter down the generations, reinforcing a sense of 'personal ownership of those assets', the firm said.

"The report makes a number of valid points," commented Adam Wrench, product development manager at London & Colonial. "Pension savers not only need to be encouraged to save for retirement but also reassured that once they have made the commitment to save, either they or their family or other dependants will at some point reap the benefits."

When looking at the main disincentives for pension savings, London & Colonial said the perceived mandatory nature of purchasing an annuity, and the inability to pass funds onto the next generation (post 75) are the biggest issues.

"Changing demographics mean young people are less likely to be able to afford to pay into a pension in the early years due to priorities such as house prices and student loans. This means surplus built up in a previous generation which is then passed on will help ensure less reliance on the state system at a later date."

Wrench added that the recommendations made in the report, which would see pension funds trickle down through the generations, will "still satisfy the Government's 'pension deal', as when any resulting pension benefit is eventually taken the income will be subject to PAYE (Pay As You Earn) at that time.

"Innovative flexible annuities have been developed in the past that didn't pool the annuitants' funds together and whatever fund remained on death was paid to the annuitant's estate regardless of age. DWP must listen to the industry's recommendations rather than simply be seen to consult with the industry for political reasons."

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