The National Association of Pension Funds (NAPF) and the Pensions Institute at Cass Business School found that around 500,000 people taking retirement each year are seeing £1 billion lopped off their pension incomes as various obstacles prevent them from accessing the best deals.

Chief executive of the NAPF, Joanne Segars, criticised the ‘toxic’ system as the report uncovered evidence of what it said was ‘sharp practice’ and ‘murky pricing’ in the annuity market.

The report said, ‘The process for choosing an annuity is a complex one and the majority still go for the “default” option by sticking with their pension scheme provider.

‘This failure to shop around for a better deal can wipe 30 per cent off their annual pension income, and in some cases up to 50 per cent.’

Those saving into a defined contribution pension use their pension pot to purchase an annuity from an insurer, which gives them a regular income but it is a decision that sets the size of their pension for the rest of their life.

The report said that 80 per cent of savers have pension pots of less than £50,000, and claimed that most annuity advisers would not find it profitable enough to advise on pensions of this size.

It warned that the lack of transparency will affect more people when auto-enrolment is introduced this year.

Segar has called on the government and industry to create a fairer system that delivers value for money.

‘There is no point in encouraging people to save if we do not help them get the most out of their savings.’

She added, ‘The way the market is priced and structured must become more transparent, and people need stronger support in picking the right annuity.’

The report was partly based on interviews with companies that cover 80 per cent of the annuity market.

The financial services provider, previously known as Living Time, said that its Primetime Retirement Plan would use a deposit-based structured investment within a self-invested personal pension (SIPP) wrapper to boost the potential for better returns.

CEO Kim Lerche-Thomsen said that the conventional fixed term annuity model had a number of advantages, such as fixed income, a guaranteed maturity amount at the end of the term and better death benefits than a traditional annuity.

‘The Primetime Retirement Plan we are now launching takes these features and wraps them within a SIPP to provide even greater flexibility,’ Lerche-Thomsen claimed.

Stuart Wilson, marketing director, explained that feedback from financial advisers was the catalyst for the launch, which is due in March.

‘What IFAs (independent financial advisers) were saying to us is that it would be better if the client could get some investment upside, which is what you can get with a variable annuity.

‘That’s what we’ll be offering, as well as providing benefits that are akin to a fixed term annuity,’ he added.

Wilson said that its new product would appeal to ‘a broader church of clientele’.

The retirement plan will be provided through Investec and will be covered under the Financial Services Compensation Scheme, with 100 per cent cover offered on the first £85,000.

The Primetime Retirement Plan will come packaged within a SIPP wrapper but it can also be used as a trustee investment into an existing SIPP arrangement.

It will be available in a series of tranche-based issues, with the first planned for March.

The product will be established under a master trust deed and rules, with a separate plan for each member, offering an ‘open architecture’ plan without platform limits.

Dentons, a specialist provider of self-invested pensions, has also, in response to adviser feedback, ‘reduced its establishment fee to £350 and introduced some fixed fees’ for the new SIPP.

Chairman of Dentons, Martyn Rose, commented, ‘The launch of the new Dentons SIPP is a key milestone for the business.

‘After 30 years, Dentons’ business continues to grow and develop and we have undertaken a brand refresh to reflect this evolution.’

The product also boasts ‘state of the art online capabilities including immediate access to the cash account balances’.

David Fox, director of sales and marketing, explained, ‘We believe the online functionality will provide advisers with an effective way to review their clients' SIPP plans, giving the most up-to-date information for a client at any time.

‘With the Dentons SIPP there are no hidden surprises. We have worked hard to develop a solution that is easy to understand and puts the adviser and client in control at all times.

‘Having flexibility within the investment options ensures that the Dentons SIPP suits the ever-changing needs of clients.’

The latest annual survey by the National Association of Pension Funds (NAPF) showed that almost one quarter, or 23 per cent, of pension schemes are shut to new staff and to future contributions from people who were already in a pension, up from 17 per cent in 2010, and just 3 per cent in 2008.
 


Among the pension schemes closed to new employees but open to existing staff, 30 per cent expect to shut the pension completely within the next five years, the NAPF said. 
 


Those companies said they intend to move employees into a ‘defined contribution’ pension, which means the amount contributed by the employer is set as a percentage of the salary but the income received on retirement is not.
 

The survey of 310 NAPF members also revealed that there has been a flight from riskier assets, and from UK equities in particular.
 


Last year, 46 per cent of defined benefit pension fund assets were invested in equities, but this figure declined to 42 per cent this year.
 


The proportion of total assets invested in UK equities fell from 17 per cent in 2010, to 12 per cent in 2011.
 


Despite the current economic environment, the research found that contributions from employers and employees into defined contribution pension schemes remained stable at around 12 per cent.
 


Chief executive of the NAPF, Joanne Segars, said there had been a ‘seismic shift’ in private sector pensions.
 

‘Demographic and financial pressures mean businesses are struggling to afford these pensions. Many firms are trying to get a grip on the risks and rising costs by freezing the fund to both new and existing staff.
 


‘While it is difficult to be exact, we estimate up to a quarter of a million have been moved out of their final salary pension over the past three years,’ Segar added.
 


She warned that the UK was not putting away enough money for its ‘old age’.

One in ten UK adults believe they will never be able to retire on their current savings plan, according to a survey that has revealed widespread financial uncertainty.

The poll, commissioned by the Institute of Financial Planning (IFP), found that only 19 per cent of adults are confident they are saving enough for the future, while nearly half of adults (47 per cent) reported that they do not believe they have saved enough to live comfortably in retirement, with 55 per cent of women falling into this category.

But it was the 10 per cent of people who fear they will never be able to stop working fully unless they changed their savings habits that proved most worrying, a statistic that included 12 per cent of over 55s. 

The government's new pensions bill is set to increase the state pension age for women to 65 by 2018, and to 66 for both men and women by 2020, as an ageing population takes its toll on the economy.

Nick Cann, CEO of IFP, said he was concerned with the results and urged people to take action.

'These findings present a worrying picture for so many people who are facing an uncertain future yet not taking appropriate steps to improve their situation. There seems to be awareness but no link to action.

‘Financial planners can help, but the challenge is to ensure a greater engagement with the consumer so that they have confidence in the route that they are taking.’

John Prout, retail consumer director at National Savings and Investments (NS&I), said saving had never been as important as during present austerity.

He said people should start reviewing their finances more closely, both in regards to their short- and long-term needs, and seek advice from family role models, community organisations or paid professionals. 

‘The key is to encourage everybody to plan their finances and to really demonstrate the benefits of doing so, for example, in saving money through switching their utility provider,’ he added.

The survey of 2,060 UK adults also found that 14 per cent of respondents have never made any pension contributions, with a further 31 per cent not currently contributing to a pension plan of any sort.

From October next year, auto-enrolment will see workers automatically enrolled into their employer's pension scheme without an active decision on their part. In introducing the scheme, the government hopes to increase the number of workers financially prepared for retirement.

MetLife’s survey of 977 retired adults and 106 retirement-focused independent financial advisers (IFAs) revealed a desire for innovative solutions among IFAs and reported that the majority of retirees didn’t seek independent advice.

Of the retirement-focused IFAs, 81 per cent expected the market for alternatives to conventional annuities to grow in the next two years, while 65 per cent forecasted a rise in clients looking for annuities advice in the next year.

Nearly half of the retired adults surveyed (47 per cent) admitted they hadn’t taken any retirement advice, though 17 per cent regretted that decision, while only 27 per cent consulted an IFA.

Dominic Grinstead, managing director at MetLife Europe UK, commented, ‘Savers are facing a new retirement reality where they will live longer and they need retirement income solutions that are flexible enough to cope.

‘That must mean more than simply a discussion about what are the best annuity rates and what is the best annuity. It should mean keeping up the pressure on innovation and flexibility and it must mean a wider ranging discussion about all the solutions available.

‘The industry needs a step change which enables customers to genuinely shop around and to address the new retirement reality driven by the increase in defined contribution pension funds.’

New long term savings sales grew 10 per cent to £15.5 billion, missing the £15.8 billion consensus estimates, while assets under administration shrunk 4.7 per cent in the third quarter to £191.1 billion.

The firm attributed the disappointing results to recent market turmoil, with pension savers more likely to stick with what they have rather than switch providers during economic uncertainty.

Chief executive David Nish commented, ‘The third quarter saw very challenging conditions in global financial markets which have impacted values of assets and customer confidence, reducing the pace of fund flows.

‘Although the economic backdrop continues to be uncertain, the outlook for our business is positive and we are confident in the future growth opportunities in our chosen markets.’

The company has invested heavily in ensuring that it takes advantage of the upcoming Retail Distribution Review (RDR), which comes into force in under 15 months.

Standard Life also believes the government’s auto-enrolment pension reforms next year will lead to an additional £150 billion in the UK's private pension market over the next five years.

Nish explained, ‘We are strengthening our market positions and improving our efficiency to ensure we are competitively positioned for the important market and regulatory changes ahead of us.’

The number of people paying into occupational pension schemes has reached its lowest level since the mid-1950s, according to the latest report.

The figure dropped from 8.7 million in 2009 to 8.3 million, according to the Office for National Statistics (ONS). It is the lowest recorded number published by the ONS since 1956.

Of these, 5.3 million were in public sector schemes, with the remaining three million contributing to private sector schemes.

Membership in the private sector has plunged from 6.5 million in 1991, a fall the ONS attributed to decreasing private sector defined benefit schemes.

An ONS report said active membership of such schemes 'fell from an estimated 2.4 million in 2009 to 2.1 million in 2010, when 46 per cent of members were in schemes that were open to new members ('open schemes')'.

However, active membership of private sector defined contribution schemes was unchanged this year at one million, with 93 per cent in open schemes.

Although public sector membership is down from 5.4 million last year, it has increased from 4.2 million in 1991.

The news means more doom and gloom for savers, after the chairman of the National Association of Pension Funds (NAPF) revealed last week that the private sector pensions system is 'significantly flawed' and may leave users short-changed.

An NAPF survey also revealed that a third of people could be set to opt out of the government's plans to automatically enrol them into a pension scheme, as the public become more disillusioned with saving plans.

Meanwhile, other figures published by the ONS revealed that an increasing number of women will receive a full Basic State Pension (BSP).

While in September 2010, only 48 per cent of female pensioners received a full BSP, by 2030/2031 95 per cent of women reaching pension age are expected to receive a BSP.

The private sector pensions system is 'significantly flawed' and will leave many savers short-changed, according to the chairman of the National Association of Pension Funds (NAPF).

New NAPF chairman, Mark Hyde Harrison, used his inaugural speech to attack the structure of defined contribution (DC) pensions in the UK as inefficient and wasteful.

DC pensions have largely replaced final salary pensions in the private sector and, according to the NAPF, around five million Britons now have one.

They will increase in importance from next year, when new government regulation will see all workers automatically enrolled in one. This change is likely to bring up to nine million new users into the system.

Hyde Harrison's attack comes days after research by the NAPF found that millions of eligible people could be set to opt out of automatic enrolment in the scheme.

After his speech, Hyde Harrison said, 'The current system is a mess, and what’s really worrying is that over the coming years millions of people will be brought into it.

'We need a radical rethink of the way we ‘do’ pensions in the UK. If we don’t, then too many people will save into a pension only to find themselves short-changed in their retirement.

'We must move from today’s significantly flawed structure to a world of large, efficient, well-run and low cost pensions which are run in the interests of savers,' he continued.

Hyde Harrison's speech identified several flaws with DC pensions, citing that they are too small and numerous, and that the information about costs and charges is far too opaque.

He called for a new breed of pensions called Super Trusts, run on a far larger scale. He said the NAPF would seek to pave the way for their introduction.