ISA savings rise while pension contributions fall
While Individual Savings Accounts (ISAs) are growing in popularity, pension contributions continue to decline, prompting the Institute of Directors (IoD)to call for the government to take action on savings.
According to data compiled by the IoD in association with Lucida, the amount paid into ISAs increased from £35.7 billion in 2007, to £43.9 billion in 2009/10.
In the 2011/12 tax year, the amount invested into ISAs reached £53.8 billion.
In contrast, contributions to employee and individual pensions reached their highest level in 2007, when total contributions were £25.6 billion.
This figure fell to £22.9 billion by 2009, representing just half of the amount being paid into ISAs.
The IoD claims that pensions have become “enmeshed in a forest of regulation” and should be simplified.
Saga, the group for those over the age of 50, has also warned that pension products fail to meet the needs of the pensioners of the future.
Saga’s director general, Dr Ros Altmann, said: “People are no longer willing to just put their hard-earned money into a ‘locked box’ where that money is taken away from them and they cannot access it for potentially a very long time.
“It’s time for some new thinking on pensions. The simplicity and flexibility of Isas have proved far more popular with today’s savers.”
The IoD’s report, Roadmap for Retirement Reform, written by Malcolm Small, calls for pension regulations to be streamlined, and for the provision of a single, flat-rate, universal, basic state pension.
The report calls for means-tested retirement income benefits such as Pension Credit to be abolished and for increases in the state pension age to be accelerated.
A separate report, from Governor Money, highlights that savings accounts aimed at people over the age of 50 offer significantly worse interest rates than savings accounts open to all age groups.
Exluding cash ISAs, researchers found that the average interest rate offered on over-50s accounts by the UK’s leading 20 financial providers is just 2.23 per cent, compared with 3.17 per cent for accounts open to all savers.