Pension system just giant bet on the stockmarket

Written by Sophie Baker

A third of people approaching retirement believe that investing in their pension has been a waste of money, according to research by MetLife.

Thirty-two per cent of those who are five years from retirement are either unhappy with their pension or say they feel they have wasted money by putting this money aside.

The report, in conjunction with independent pensions expert Dr Ros Altmann, Planning for Retirement: You're On Your Own, says that policymakers 'never seriously entertained' the potential for stock markets to fail in delivering strong returns and levels of retirement income over the long-term. Fifty-four per cent of those five years from retirement said their pensions will fall short of expectations and they are worried about their income in retirement.

In the report, Altmann argued that the 'bet on equities' means governments have been able to cut the State Pension and shift responsibility to employers. This has forced employers to cut pension provision as regulation and policy changes in turn to increase costs.

Altmann said private pension income is now an essential tool in enabling savers to avoid poverty in later life, and says in the report that new approaches to pension saving are necessary.

'Essentially the entire UK pensions system has been based on a bet that equities would always do well enough over the long-term to deliver reliably good pensions,' she said.

'The old idea that stock markets can always be relied on to deliver strong returns has left millions facing an impoverished old age. It is therefore important that people understand what risks and costs have now passed from employers on to their own shoulders.'

Dominic Grinstead, strategic development and marketing director of MetLife's UK retirement and savings business, added: "Retirement savings is at a crossroads and the need for new approaches is clear. Dr Altmann's report is an important contribution to the debate on the future of UK Pension provision and MetLife is committed to playing its part."

Altmann's condemnation of a one-size-fits-all approach to pension saving has been praised by Alasdair Buchanan, head of communications at Royal London. "Although Ros Altmann's comments are sweeping in terms of investment commentary, she is right to critics a one-size-fits-all approach, as the chances are that it will not be appropriate for specific individuals. There are certainly comprehensive packages available on the market and Scottish Life, in particular, has put a great deal of effort into designing propositions which are intended to look after customers' interests - especially when it comes to enabling asset allocation to reflect individual attitudes to risk. Lifestyling, for example, automatically switches people into less volatile classes as they near retirement, in order to provide individuals with better returns - a safeguard which is priceless in these times on economic volatility."

However, Steve Patterson, managing director of income drawdown specialists Intelligent Pensions, was more forceful in his analysis of Altmann's comments: "I was surprised by her views on equity investment, which run contrary to far more in depth studies on this subject. While many of her comments about the shift in the burden of risk from employers to employees are well founded, some of her statements about equity investment are quite misleading, relying heavily on just one 10 year period with an 'end date' at the end of a stock market crash, and evidence from one particular market - Japan.

"Her statement that 'the risks of equity investing seem to have been dangerously underestimated' ignores the relevance of financial advice, and in particular, asset allocation as an integral element of risk management."

- Pensions Age May 2009

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