Workplace pension contributions and coverage should be increased, says study

The UK has jumped up the rankings in a global study of retirement systems, but it said more could be done to deliver better retirement outcomes.

Vicky Shaw
Tuesday 19 October 2021 13:12
A global study of pension systems warned many savers still face a retirement ‘cliff edge’ (Rui Vieira/PA)
A global study of pension systems warned many savers still face a retirement ‘cliff edge’ (Rui Vieira/PA)

The UK has jumped up the rankings in a global study of pension systems, but it warned that many savers still face a retirement “cliff edge”.

The UK was ranked ninth in the Mercer CFA Institute Global Pension Index 2021, which benchmarked 43 retirement income systems around the world, highlighting their strengths and weaknesses.

Last year the UK had been placed 15th, so the recent jump marks an improvement.

The index highlights some shortcomings in each retirement system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

Many members still face a cliff edge at retirement

Tess Page, Mercer

The impact of automatic enrolment into workplace pensions is a key factor behind the improvement for the UK, according to the findings.

But the index said there is room for improvement in areas such as the pensions gender gap and pensions adequacy for lower paid workers.

Those behind the study suggested that further increasing workplace pension contributions and coverage under automatic enrolment could help deliver better retirement outcomes.

Iceland was identified by the study as having the best retirement system in the study, with the Netherlands and Denmark taking second and third places respectively.

Tess Page partner and trustee leader at consultancy Mercer, said: “The UK pensions system is in a much-improved position from last year.

“We have benefited from auto-enrolment pushing up savings rates, as well as mostly helpful policy and regulatory changes.

The Government could help millions of savers if it made pensions savings count from the first pound earned rather than £6,240 and also allowed people to be automatically enrolled from 18 rather than 22

Phil Brown, People’s Pension

“However, many members still face a cliff edge at retirement and, as ‘generation DC (defined contribution pension)’ approaches pensions age, this issue is only expected to accelerate.

“There are a number of actions that employers, trustees, and the Government could take to help improve the UK system and deliver better long-term retirement outcomes. A great start would be further increasing auto-enrolment contributions and coverage – notably to better serve those who are self-employed.”

Ms Page added: “One real bright spot of opportunity, as highlighted in our recent survey with the CBI, is the UK’s leadership on managing pension scheme climate change risk.

“By managing climate risk, it provides a path to sustainable investment returns and helps with scheme member engagement. That said, so far it has been a little too much talk and not enough action. Many pension schemes do not know where to begin, but there are small changes that can be effective such as basic assessments to evaluate what actions will ensure most impact.”

A Department for Work and Pensions (DWP) spokesman said: “Our groundbreaking pension reforms, including automatic enrolment, have helped millions more women save into a pension, many for the first time.

“Pension participation among eligible women working in the private sector has risen from 40% in 2012, to 86% in 2019.”

Phil Brown, director of policy at the People’s Pension, said: “While we agree that self-employed workers should have better access to pension savings and that minimum automatic enrolment contributions will need to increase at some stage, neither are a quick fix.

“The Government could help millions of savers if it made pensions savings count from the first pound earned rather than £6,240 and also allowed people to be automatically enrolled from 18 rather than 22. Lowering the earnings threshold for auto-enrolment from £10,000 to £6,240 would also introduce more than one million new people to pension saving.”

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in