A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/uk-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
For even more information feel free to visit the following external sites:
https://www.gov.uk/new-state-pension/what-youll-get
https://www.thepensionsregulator.gov.uk/en
https://www.pensionsdashboardsprogramme.org.uk/
B] The Issue
Three-quarters of UK investment based Defined Contribution (DC) pensions savers say they are not on track to achieve a “reasonable standard of living” in retirement, according to asset manager BlackRock. Thus marking the lowest level of confidence in long-term savings prospects since the survey began in 2017.
C] The Details
The survey of 1,000 savers across the UK found half of those questioned said they could not afford to save enough for retirement, while over a third of DC members said their “biggest concern” was not having enough money to retire “with dignity”.
The findings come with the UK sliding into a retirement crisis. The first generation to save mostly through DC schemes is approaching pension age. Many without benefiting from auto-enrolment into pensions early in their careers. (Which again and just like in many other countries shows the high value of auto enrolment pension participation.)
“This sentiment demonstrates the need for an increase in individual pension contributions and broader pensions innovation, such as target date funds or Collective Defined Contribution (CDC) schemes, both of which pay an income in retirement,” said Gavin Lewis, of BlackRock UK.
D] The Impact
The findings add pressure on the government ahead of the launch of the second phase of its pensions review expected before the end of the year, which will be focused on pensions adequacy. BlackRock’s survey found that 70% of millennials felt unable to plan for the future owing to current financial pressures.
For those approaching retirement, 75% said they would value help calculating the income they will need in retirement and only 11% said they had a clear understanding of their income generating options. Half of those questioned in survey said they cannot afford to save enough for retirement
E] Finally
In a move to help provide guidance on potential income at retirement, the UK government plans to expand the scope of Collective Defined Contribution(CDC) schemes, where members participate in a pooled scheme and are offered a target return they can plan their retirements around — but returns are not fixed and companies are not obliged to make up any shortfalls in the scheme’s funding. (As the outcome in the CDC system partially depends on the used interest rate, a solid pay-out would require at least not the existence of very low interest rates.)
So far, only Royal Mail has launched such a programme, but in an interview with the Financial Times the pensions minister said she was “excited” about plans to allow multiple employers to participate in CDC schemes.
In our humble view it is inevitable to increase the level of auto-enrolment in order to effectively reduce the retirement crisis in The UK.