A new report released featuring government ministers warns that lower annuity rates are among the most pressing issues that UK adults will have to deal with in the future.
People will need to become more proactive with regards to retirement saving in order to survive financially post work, according to Minister for Pensions, Steve Webb.
He made his comments within a report published by the Chartered Insurance Institute relating to the UK?s ?retirement saving deficit?. Mr Webb went on to say that with life expectancy on the up and annuity rates on the decrease, the next generation will face tough challenges when it comes to retirement planning and saving. He also pointed to the decline in final salary pension schemes as a contributing factor towards the difficult times ahead.
Due to the current state of people?s retirement finances, some in the industry are suggesting that a further increase in the state pension age is inevitable.
There is some agreement that while normal annuities are still very popular, increasing rates of inflation chips away at guaranteed incomes making life more difficult for retirees.
One solution offered is to incentivise saving for retirement by offering prize money. This attempt to shift the lack of saving culture in the UK could help boost retirement saving levels.
It is also being suggested that a lottery scheme could be key in helping UK adults become more responsible about saving for retirement.
Potentially, a system could be put in place where by everyone who contributes to a pension could be entered into a draw to win £1 million each month. The cost of the monthly draw would be very small in comparison with how much is spent on pensions marketing.
According to the Chartered Insurance Institute, the size of the UK's retirement savings deficit currently stands at £9 trillion.
Ray Black, IFA and Managing Director of Money Minder, talks about what he thinks could be done:
"For some time now I have been writing about the need for more education. But I'm not talking about consumer guides that can be downloaded from the internet or requested in the post, we need a government led proactive campaign to educate the UK public in financial planning affairs.
"In just 18 months there will be even less access to professional advice then there is now and whilst I like the idea of prize funds and earlier access to pension funds, for the majority this will mean that they will have very little options when it comes to trying to sort out their financial affairs."
"In 2002, the Sandler report suggested that there was a £27 billion annual savings gap that could be cut by up to £5 billion a year if sales regulation was kept to a minimum and companies could cover the costs of persuading customers to save enough to protect their future. - now that plan A has failed, we now need to move swiftly on to plan B - so here's another idea - what about more education via government sponsored access to financial planning roadshows run and organised by local level 4 qualified professional independent financial advisers?"
