Pensions hope based on 'cult of equities'
UK pension savings have been focused on the cult of investing in equities, a leading expert has warned.
Pensions policy advisor Ros Altmann is calling for a shake-up of pensions - as recent stock market falls have lead to a third of those approaching retirement claiming they wish they had not bothered saving.
"Over half of people are not happy with their investments and for a third to wish they hadn't bothered is a damning indictment.
"The fact many will need to work longer will have to be addressed."
"There isn't any right answer," she said, at the launch of a study into pensions for insurance giant MetLife.
Dr Altman explained pensions have headed towards stock market investment as a default and the crisis since last autumn has shown how dangerous that can be.
"We need to challenge the idea the stock market will deliver."
She called for a redefinition of pensions - so people have pensions in place providing the minimum security so they are not left with nothing and then long-term savings for retirement.
The amount of risk people are willing to take on these long-term savings would then rest on them - without the assumption the stock market is the only option.
The balance to find is for those wanting security through bonds but requiring higher amounts of contributions for a greater standard of living in retirement and those willing to save less and take a greater risk.
Dr Altmann explains the choice is between the hare of the stock market and the tortoise of the government bonds.
"People have been made to feel bonds are the wrong option," she said.
"The hare has now collapsed and not got to the finishing line. The cult of equities worked well for 20 years but people were lulled into a false sense of security."
She also hit out at those who argue with the stock market falling so far it cannot fall further.
"It could fall, but it is not the most likely outcome," she said, explaining there was a danger of the stock market following the example of Japan where equities are still a quarter of what they were in 1989.
One option outlined by the report is insurance for pension pots - to protect them against stock market falls.
"If you had just had a fire at home, another fire is unlikely but you still need insurance.
"If premiums are too high you may take the risk."
Insurance is also not without risk, with the cost of premiums eating into the amount saved and holding back some of the gains if the stock market rose greatly.
Dr Altmann also urged caution about options such as annuity drawdown - where some of the investment pot remains invested while a tranche provides income - as with the stock market so low the value they provided is limited.
She added, however, no single way forward over pensions was right for all and greater flexibility was needed.
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