The retirement savings industry should take the lead in reinvigorating Britains savings culture by setting up a mandatory annuities clearing house and a service for grouping small pension pots, the Centre for Policy Studies said today.
In Put the saver first, pensions analyst Michael Johnson claimed the industry was in the 'last chance saloon' of public opinion, with hostility towards the sector fuelling a decline in people saving adequately for their retirement.
The industry has a brief window of opportunity to take action itself, Mr Johnson said, as the planned review of auto-enrolment and the National Employment Savings Trust in 2017 could herald major state intervention.
In particular, the industry should address the 'opaque and toxic' market for annuities which, the report said, was depriving retirees of up to £1bn of income a year.
'The Open Market Option which allows retirees to shop around for the best annuity rate, is widely regarded as a failure,' it said. 'This paper proposes that the exercise of the OMO should be made mandatory, achieved via an annuities clearing house; essentially, a marketplace in which all annuity providers participate.'
All annuity contracts would be standardised and, due to the small scale of average defined contribution pension pots being sold as annuities (£25,000 on average) they would be aggregated before being sold to increase the number of potential purchasers, and therefore increase the change of getting a better deal.
Pensions providers should also work together to drive the process of pot consolidation by establishing an industry-wide DC pot consolidation service.
According the report, this 'BACs for pensions' clearing house would benefit customers and providers alike by reducing the cost of administering the millions of small pension pots built up by people moving around employers and helping savers to maximise their retirement income.
Mr Johnson also called for the creation of a new 'Super ISA' to eventually provide people with a 'seamless savings vehicle' from birth into retirement. All new-borns would be allocated a Super ISA, which would be identified by their National Insurance number.
Writing in the report's foreword, Baroness Hollis and Lord Flight said: 'By taking a risk, and challenging its own vested interests, it [the retirement savings industry] could boost its efficiency.
'Lower prices, and enhanced transparency, would lead to more business with more customers: a "win-win". There is a window of opportunity. The alternative is to await the very real possibility of further state intervention, perhaps when auto-enrolment and NEST is reviewed in 2017.'
Darren Philp, policy director at the National Association of Pension Funds, acknowledged there was a lack of confidence in pensions which needed to be tackled urgently but said the industry was taking steps to improve participation and trust among savers.
'In particular, the NAPF is leading work on making charges in defined contribution pensions more transparent by producing an industry code of good practice,' he said. 'We have also worked with other industry leaders to publish a code of practice on the incentives that some companies use to persuade staff to quit final salary pensions.
'These are important steps, but it is clear that we need to continue improving the system.'