Pensions 'a waste of time'

For some, benefits may prove too generous

Britain's low-paid could be better off steering clear of pensions entirely, a leading think tank has argued.

In a new report, the Institute for Fiscal Studies (IFS) pointed out that that the UK tax system offers few incentives to save into a pension scheme, despite the government's commitment to remedying the national pension shortfall.

New, more generous means-tested benefits mean that pensioners "will need to think particularly carefully about whether to save for their retirement at all," the IFS said.

And for many others, alternatives such as Individual Savings Accounts (ISAs) offer greater flexibility.

The findings will be a blow to the government's stakeholder pension scheme, a programme aimed at drawing more lower-paid workers into saving for their retirement.

'Not worth it'

Carl Melvin, managing director of independent financial advisers Pension Transfer Solutions, agreed with the findings.

"They've hit the nail on the head." he said.

"People who are unlikely to be capable of building up a big pension fund could decide that it is not worth it.

"As things currently stand, if I was in a low income group, I would probably choose to invest in an ISA or in property rather than a stakeholder pension."

Backfiring policies

The government is keen to draw more people into the pension net.

But its policies on benefits came in for particular criticism from the IFS.

Via a package of measures, including the so-called Pension Credit, the government is about to make means-tested benefits for pensioners much more generous.

Beneficiaries will include low earners, and especially those with few savings or who live in rented housing.

But "individuals who... see that they are likely to be entitled to means-tested benefits face a less sharp incentive to save than individuals who will not receive means-tested benefits," the report said.