The former policy adviser to Number 10 says UK pension policy has, at its core, been based on assuming that pension investments in the stock market could be relied on to deliver good pensions in future.
Altmann has attacked regulators, the Government, employers and advisers for propounding the view that it is axiomatic that all investors for the long-term would do best in the stock market.
She says equity risk premium cannot be relied on and argues that the credit crisis has confirmed that such over-reliance on the stockmarket has been a disaster.
Her report points out that in the UK over the past 10 years, £10,000 invested in the stockmarket would be worth just £8,500 – a fall of 15 per cent – whereas £10,000 invested in government bonds would now be worth £17,000, a rise of 70 per cent. In Japan over the past 15 years, bonds have increased by 80 per cent, while equities have fallen by 50 per cent.
Altmann is calling for the development of pension savings arrangements that offer some form of insurance in the accumulation phase. She says this is needed to remove the risk of the huge disparities in pension outcomes that have been experienced by pension savers with identical saving histories who have annuitised just one or two years apart.
Altmann says: “The entire UK pension system has been based on a bet that equities would always do well enough over the long term to reliably deliver good pensions. The bottom line is that financial theory tells us nothing about whether any particular pension investors will actually benefit from the equity risk premium at all.
“The idea that equity markets might not deliver over the long term was never seriously entertained by policymakers. Nobody explained to workers that they were effectively gambling their future security on the stockmarket.
“We need a new approach – can we provide some affordable insurance protection? We have to rethink our whole approach to pension saving and be honest with people so they can understand the need to differentiate between the minimum security aspects of pensions and aiming for high investment returns.”