Workplace pensions improve
But lower-paid workers and gender gap issues need to be addressed, says study
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.
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 autoenrolment pushing up savings rates, as well as mostly helpful policy and regulatory changes.
“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 autoenrolment 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.”