UK savings system needs reform, says think tank

The UK's savings system needs to be reformed in order to encourage people to save more money, a report says.

The Centre for Policy Studies think-tank says the current system is too complicated and puts people off saving the money they need in retirement.

It proposes combining the pension and Individual Savings Account (Isa) regimes, with an overall contribution limit of £45,000.

It also suggests letting people access their pensions before they retire.

Specifically, they should be able to draw down up to 25% of their fund prior to retirement.

They should also be allowed to pass on any unused savings to their heirs, tax-free, the report says.

The think-tank also argues that people should no longer be forced to buy an annuity when they reach the age of 75.

Instead, they should be allowed to draw down their assets as and when they need them, providing they still have at least £50,000 worth of assets in their pension at 75.

Among other measures, the centre also proposes the introduction of a new mini-Isa with an annual limit of £1,200 to encourage under-16s to save.

The Association of British Insurers also called for a new limit on the amount people can pay into a pension each year.

The limit, which it said should be £50,000, "will greatly help simplify the current system of tax relief for pension contributions.

The UK urgently needs to build a better savings culture," said the ABI's director of life and savings, Maggie Craig.

Economists say that, as a nation, we do not save enough money during our working lifetimes to provide for retirement.

With people living longer and the state finding it increasingly difficult to fund state pensions, individuals need to save more, they say.