UK - A "bold reform" of the UK pension system - with a significant extension of the retirement age - is necessary as the current model is "unsustainable", according to a senior pensions adviser.

Speaking at the Financial Services Research Forum, Malcolm Small, senior adviser on pensions policy at the Institute of Directors, said the pension age should be raised to 70 as soon as possible and indexed to life expectancy.

According to him, the current system is too complex and will not endure in the face of concerns such as long-term care issues and the national debt.

"It was designed against a number of assumptions that are no longer valid," he said. "One of those assumptions was full employment. One was a declining national debt.

"We've got to accept that public and private pension systems can't support a 30-year retirement from an effective 35-year working life. They were never designed to do so."

Small therefore called for a bold reform to facilitate the pension system.

"The pension architecture we have today has become so off-putting, so complex, that we really need to go looking for a new architecture for the 21st century," he said.

"When we find that new architecture, it's going to look a lot more like an ISA than a pension does now."

In other news, pensions de-risking business in the first quarter dropped by nearly 80%, falling from £1.6bn (€1.8bn) in the fourth quarter of last year to £350m in Q1 2011.

Despite this drop, according to JLT Pension Capital Strategies, insurers remain confident about their prospects for this year, having already reported more than £1bn deals to date for the second quarter.

Tiziana Perrella, head of buyout services at JLT, said: "The high level of activity in the early part of the year has not been reflected in the deals completed.

"We understand there are at least 10 £1bn-plus schemes investigating a buy-in or buyout at the current time. This could mean another record year, if even just a fraction of these cases go through."

JLT said buyout prices were generally stable throughout 2010 and that bulk annuity prices had remained stable in the first quarter.

It also said there was further evidence to suggest insurers were improving their pricing basis, with a number of payment options on offer to underfunded schemes.

"The flexibility in payment options being offered to schemes by insurers will increase the amount of buyout activity, and the continued interest in de-risking solutions for end-game schemes remains high, suggesting we are on the cusp of a flurry of activity," Perrella said.

Finally, a new study by PwC suggests that UK companies are "overpaying" into defined benefit pension schemes, with funding targets more than 10% higher than necessary.

According to PwC, the level of overpayments could total as much as £5bn (€5.6bn) a year.

The consultancy said outmoded ways of calculating contributions needed to cover future pension payouts failed to reflect the way pension scheme assets were invested and the longer-term gains expected.

Pension scheme funding targets typically assume funds held for retired scheme members will be funded by lower-risk investments such as bonds.

But with the proportion of pensioners increasing, funding requirements are in turn being based on a greater proportion of low-growth assets, which for many schemes does not reflect the actual investments the scheme holds, PwC said.

Jeremy May, partner in the pensions practice, added: "The disconnect between how pension scheme assets are invested in practice and how the funding target is set could, at worst, impact on corporate activity and adversely affect investor perceptions of a business's health.

"At the very least, the current approach to setting funding targets is distorting corporate decisions around how to manage better risk within these schemes."

PwC argues that funding targets should be based on a scheme's long-term investment strategy. This should incorporate scheme-specific changes to asset allocation, not the blanket approach currently used.

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