Pension schemes past their sell by date
03-Nov-09 by Tim Moore
With over seven million customers, the UK's largest insurer Aviva has proposed reforms to the pension system hoping to make retirement saving more flexible and current. Paul Goodwin, head of pensions at Aviva stated:
"We want pensions to be built around the needs of the modern, flexible workforce, not the one that existed 30 years ago."
"Our proposals will make pension saving simpler, more attractive and encourage people to save during their work life for when they are retired."
"They simplify pension rules and introduce much needed flexibility when it comes to accessing money saved into a Pension."
It is Aviva's hope therefore that pension savings can be taken earlier, compulsory annuities are to be scrapped and 30% contribution tax relief is to be given to all as opposed to the current system based on income tax thresholds. They believe this would benefit basic rate taxpayers who receive 20% relief at the expense of higher taxpayers that receive 40%.
Over half the people surveyed by Aviva believe the state pension will be either their first or second source of retirement income. But more than two thirds don't actually know what the value of such an income is.
Believing it to be an entirely impractical scheme, Aviva have proposed the abolition of the pension credit scheme altogether. Instead they believe the introduction of a basic £130 state pension, funded by new National Insurance contributions should take its place. This new pension scheme would allow a single pension to increase their earnings each week by more than a third.
Aviva also believe the access to pension savings to currently be unsatisfactory. With the age of being able to access one pension rising to 55 next April, many opposing the move argue that as most people manage their finances within a one year time span, any barrier of age when accessing pensions is unnecessary.
They have proposed that allowing pension savers access to just a small portion of their savings before retirement however, may remove the psychological barrier and acclimatise them more efficiently to long-term savings.
