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Pensions are so off-putting to younger people struggling to build a retirement pot that the term should be replaced with a new approach to saving, a former pensions minister has suggested.
Steve Webb, pensions minister between 2010-2015, says the phrase “pension” had little appeal to debt-laden younger workers who were not setting aside enough for later life.
“Because pensions sounds like pensioners, young people don’t think they will get old,” said Mr Webb. “However, they face big challenges more than ever to save adequately for retirement.”
Mr Webb suggested pensions could be rebranded so younger people were encouraged to think more about the lifestyle they wished to have in later life and not simply about products, which have their own set of complex rules and restrictions.
“You could call it your freedom pot, or your life choices pot, or whatever, but it means you can have a conversation that isn’t about pensions, but your life choices in later life,” said Mr Webb, who is now director of policy with Royal London, the pension provider.
“So you say to someone who is young; if you want to work until you are 75, be my guest, but actually if you quite fancy, travel, time with the kids, further study whatever, it’s your freedom pot. This is your life choices pot. This will give you the chance to do all the things you’ve dreamed of.”
Mr Webb’s comments came as new research showed 18-35-year-olds wanted to save for later life, but were restricted by short-term financial pressures.
When asked what prevented them from saving for the long term, 48 per cent of respondents to a survey by the Pensions and Lifetime Savings Association (PLSA) said the cost of living was too high and 43 per cent said their salaries were too low.
“Eighteen to 35-year-olds are no different to many people — they want to save for a secure future but short-term financial pressures get in the way,” said Joanne Segars, chief executive of the PLSA.
Meanwhile, pension experts said the government needed to focus its efforts on raising workplace retirement savings levels, which are widely regarded as too low.
More than 6m people have been automatically enrolled into workplace pensions, where they and their employer must make a combined minimum contribution into the worker’s pension of 2 per cent of earnings between £5,824 and £43,000.
This minimum is set to rise to a combined 8 per cent of a band of earnings by 2019, but experts say this still may not be enough for most people to retire comfortably.
“I would hope that the new pensions minister will look at automatic enrolment and to address the question of adequacy of contributions,” said Malcolm McLean, senior consultant with Barnett Waddingham, the pension consultants.
“Where contribution rates should go after the 2019 increase to 8 per cent is a pressing issue.”
Baroness Altmann, the previous pensions minister, supported a system of pension contributions also increasing when a worker received a pay rise, in preference to mandating higher contributions levels that “might drive more to opt out” of pension saving altogether.