Pensions should offer insurance, minister says

Pensions minister Steve Webb wants industry experts to seize on a gap in the market for innovative pension products to offer people a greater degree of certainty on what their pension income could be.

One possible product is where the saver pays a premium to guarantee the value of an investment cannot fall below a certain level.

The Government will start to automatically enrol between nine and 10 million people in pension schemes from October, under a scheme first announced four years ago.

Webb says: "I am convinced people have a huge appetite for certainty about their pension savings and this demand will drive the shape of pension provision in the future.

"I want industry to innovate and think hard about this.

"With the dawn of automatic enrolment the market is growing – so now is the time for the pensions industry to look at the market gap in relation to affordable guarantees, and provide the products consumers are seeking."

The move comes from fears that unless pensioners can be guaranteed their money is safe, they will be deterred from saving.

Savers have also been put off from contributing to pensions by the squeeze in household incomes caused by the recession.

Fewer using workplace pensions

Official figures released earlier this year showed that the proportion of people in a workplace pension has fallen below half for the first time in at least 15 years.

Just 48% of employees were in a scheme, compared with 55% when the records began in 1997, Office for National Statistics figures revealed.

A study by the National Association of Pension Funds (NAPF) found more than half of workers (54%) were not confident in pensions compared with other ways of saving.

While the Government hopes to boost take-up with automatic enrolment, almost four in 10 of those eligible told the NAPF survey they would struggle to pay into the scheme, while a third said they would quit the new pension.

Ministers estimate between two and four million people will opt out of auto-enrolment, leaving five to eight million who will be new to pensions, or saving more into one.