By Adam Uren
PUBLISHED: 17:02, 2 April 2013 | UPDATED: 11:35, 3 April 2013
Sweeping changes introduced seven years ago which were designed to simplify the UK’s pension system have failed miserably, according to a survey of financial advisers.
Friday will mark seven years to the day that the ‘A-Day’ pension reforms hit the UK, which saw the lifetime allowance introduced, tax-free lump sums set at 25 per cent, and flexible company pension arrangements put in place.
But the changes, not to mention the countless alterations to the pensions system since 2006, have left savers more confused than ever, according to research from Unbiased.co.uk in which 83 per cent of financial advisers said A-Day had done nothing to make pensions easier to understand.
Unbiased chief executive Karen Barrett said: ‘The UK pension system has dramatically changed over the last few years; with different governments come different ideas and it’s unlikely that this will cease.
‘What’s clear is that relying on the state will not provide you with a comfortable retirement and the trend of moving the responsibility of the funding of retirement from state to individual is one that is sure to continue.’
The last seven years have seen upheaval in the pensions industry, not least the introduction of auto-enrolment last October which will see millions brought into pension schemes for the first time over the next five years, as the Government frantically tries to cushion the financial cliff of workers reaching retirement.
But A-Day only ranked second for having the worst effect on pension saving since 2006, with financial advisers identifying decreasing the annual tax-free allowance as having has damaged savers the most.
The annual allowance – the maximum amount someone could save into a pension each year while still gaining tax relief – stood at £215,000 when A-Day came into force, but this has reduced to £50,000 currently and will decrease even further next April to £40,000.
Other damaging changes to pensions identified by advisers includes the capped levels of income drawdown, the creation of the single-tier pension and scrapping the default retirement age of 65.
60 per cent of advisers said their clients had lost confidence in pensions, while 17 per cent have been put off saving into a pension due to poor annuity rates.
The answer? According to the research, the system would improve if the Government were to stop tinkering.
Around half of those surveyed think that no more changes should be introduced for at least the next five years, when auto-enrolment has been fully rolled out.