Considering the lack of understanding of pensions among those approaching retirement, “pensions as we understand them are finished,” Centre for Policy Studies research fellow Michael Johnson has claimed.

Speaking at the Barnett Waddingham DC Snapshot conference, Johnson outlined a proposal for a single savings product and an overhaul of the current pensions system.

Johnson introduced his new pension plan that involves “one savings vehicle from cradle to grave”. He stated that “the pension and savings world is bipolar” and that the industry needs something that merges the two.

Johnson’s proposal comprises of a single fund that bears similarity to the Lifetime ISA, however, also includes retirement savings.

With the option to pay auto-enrolment contributions directly into the fund if the individual chose, the product “would have two cells”, one of which would receive employer contributions and remain locked until retirement/ the age of 60, and the other part that would be funded by employee contributions and used like an ISA. These would be post-tax contributions.

“The name of the Lifetime ISA is deliberate, it should serve for a lifetime,” Johnson said, adding that child trust funds and junior ISA’s should also be incorporated into the single fund. It could be opened from birth with £500 already in it and savers could gain access to the fund at 18, he suggested.

The Centre for Policy Studies research fellow also stated that the state pension should be scrapped in its entirety. Johnson claimed that the UK is “trying to tip toe into a funded world,” however, the continuation of the state pension “means we are underfunded”.

Further to this, Johnson suggested a new format for drawing income at retirement. Referring to his method, named “auto-protection”, which would see savers go into a period of “auto-drawdown” at 55 and then “auto-annuitisation” at around 78.

He also proposed a replacement for the state pension, which is funded by the individual: workplace ISA decumulation. This would involve a choice of automated drawdown or an annuity between the ages of 65 to 80, followed by a senior citizens pension from 80 onwards.

Furthermore, Johnson briefly mentioned the Freedom and Choice reform, which is currently being probed by the Work and Pensions Committee. “I proposed the reforms in June 2010 and it took five years to be implemented,” however, “there has been a number of unintended consequences that I did not see”.

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