Ros Altmann has recently commented that simply topping up ISAs and calling them “Pension ISAs” is not going to help solve our long-term retirement problems. The danger of using the ISA structure is that it ignores the fundamentals- that people run out of money in later life because they underestimate their capacity to survive, don’t plan for the costs of healthcare (especially long-term care) and forget about the corrosive impact of inflation on their savings and income.

With at least 10m new pension savers arriving as a result of auto-enrolment, pension schemes are no longer clubs for middle and senior management. Everyone’s in, including quite a few non-taxpayers.

So the pension system needs to work for these new savers without alienating the existing lot. Inevitably this will mean getting existing savers to recognise they will not get quite the free ride EET provides them today. But the current congregation cannot be treated with kid gloves, we are in a new world and it is not exclusively their’s.

The new savers, and those who did little saving till now are unclear about retirement. We know this because we talk to many employers and their staff as part of our Financial Education Programs.

Few understand the real cost of insuring against old age, nor the advantage of doing this collectively.

Few understand why individual annuities are so expensive nor the costs of drawdown. Few understand the costs of long-term care nor the impact of inflation on savings.

Few understand the advantages of investing for the long-term in real assets nor the benefits of diversification.

In short, as a nation, we are very short of the levels of financial education needed for us to manage our pensions ourselves. We will need others to do this for us.

Ros Altmann is right, we cannot expect people to save into incentivised ISAs and then invest and spend the savings in a controlled way.

Sensible , independent minded people are fast coming to the conclusion that while we should be free to do what we like with our savings, we need a fall-back position , if we find ourselves out of our depth.

That means a controlled or “targeted” income stream that people can buy into with their retirement savings. Something simpler and cheaper than drawdown and better value than annuities- something in between.

Here is my break-through moment.

Until now I have struggled to find the trigger to incentivise the use of such a product. But Ros Altmann’s article has given me an idea which makes sense (at least to me).

The incentives that Government gives (the top-ups) should be available to pension ISAs but not to ordinary ISAs, in return for the incentives, those who use them should committ to spending their pension ISAs wisely. That means buying into controlled means of spending (decumulating) their money. That might mean buying a guaranteed annuity or buying into a drawdown program or buying into one of these default mechanisms run along collective lines.

People will be free to spend their money in other ways- to buy to let for instance, but in doing so, they will see a proportion of their savings taken back by the Government.

I see this , not as another tax, but as a clawback of incentives given but not earned. Infact, the clawback would simply return people to the position they would have been had they invested in a pure ISA (not a pension ISA).

The principle that people should be incentivised to behave well, is a good principle. People get the idea of being rewarded for long-term saving and sensible spending.

What we need to do now, is press on with the business of helping people with better ways to spend their pensions (or pension ISAs). That is why it is critical we continue to develop the secondary Defined Ambition legislation.