Altmann outlines her three-point pension reform wish list

‘The amount you pay in varies with earnings, via National Insurance, but the amount you get out is fixed. The changes came in with the 2007 pensions act but it’s a very redistributive old Labour idea.’

Contracting out

Vahey also thinks contracting out should be reviewed before 2012 when it is due to be scrapped.

Contracting out is unique to the UK and allows people not to pay national insurance in exchange for the government not paying their state second pension, assuming they will use their private pension arrangements.

According to Vahey, even though contracting out doesn’t work for most people on paper, she still finds many who prefer to have the money ‘in their pocket’ rather than a fund of unknown value.

‘People need some kind of concrete figure about their state pension early on…otherwise they may prefer the risk.’

Compulsory annuitisation

Altmann welcomes the new government’s decision to abolish compulsory annuitisation by 75 but thinks people should still be encouraged to buy better value 10-year annuities at 65 before turning to state provision when that has ended.

‘It is only part of a much bigger review of the tax and pensions system that is needed that includes the flexibility of tax rules and triviality,’ says Vahey.

‘What the impact of this measure alone will be, that is the million dollar question.’