More creative thinking needs to go into the design of workplace pensions if Britain’s pensions’ crisis is to be solved, an HR consultancy has warned.
A study by Hewitt Associates has suggested greater innovation in pension design is the best way to reinvigorate the UK’s occupational pensions industry.
How pension plans are drawn up, sold and implemented must respond directly to expected changes in the UK’s demographic profile, it said.
As people live longer, so they will be working longer and will demand greater flexibility around the time of retirement, it predicted.
Raj Mody, Hewitt pensions’ strategy consultant, said: “We need to get away from the idea that retirement happens over a weekend.
“Instead, because of changing work and retirement patterns, people are more likely to want to phase into retirement, possibly over several years, taking on a different or part-time role as they do it. New pension designs must support, not hinder, that need,” he added.
Greater flexibility in the design of pension schemes would be a crucial step in enabling employees to take control of their retirement income, and for employers to take control of their risks and costs, he recommended.
Employers and employees needed to find a true middle-ground where financial risk could be shared in a flexible way, he stressed.
“Existing final salary or defined contribution arrangements are not sustainable for most employers or employees, as one party bears all the financial risk in either scenario.
“This is just not workable in the long term, yet these designs continue to make up a majority of the UK occupational pensions market,” Mody said.
”Simply switching from final salary to defined contribution does not resolve this issue. In fact, in the longer-term, it has the potential to exacerbate the pensions challenge,” he added.