UK retirees are not saving enough for their retirement in a system that is likely to struggle going forward, a report has warned.
The Melbourne Mercer Global Pensions Index ranked the UK pensions system 14th in the world, after it scored high on integrity but low on adequacy and sustainability.
This means while savers have trust in the system that it will be able to deliver, they lack in education and understanding of what they need in retirement, which means they are not saving enough.
The authors of the report said this meant employers will have to take a greater role in the provision of pensions going forward.
They also recommended raising the minimum pension for low-income pensioners, increasing contributions to workplace pension schemes and a better coverage for the self-employed.
Benoit Hudon, head of wealth at Mercer UK, noted that the “UK retirement system’s strong score for integrity needs to be matched by improving adequacy, in other words what people actually receive in retirement”.
He said: “A lack of understanding of what they will receive and of what they will actually need in retirement has led to a gap in retirement savings for many employees.
"This begs the question as to whether employers should play a greater role, both in educating and supporting their workforce.
“Taking a more active role in securing employees’ retirement could support engagement and productivity, and help attracting top talent.”
The UK pension system received a C+ grade in the index, which compared 37 retirement systems across the globe in three categories - adequacy, sustainability and integrity.
A C+ system has some good features, but also major risks and shortcomings that should be addressed. Without these improvements, its efficacy or long-term sustainability can be questioned, the research stated.
The UK had an overall ranking of 64.4 in 2019, ranking 55.3 on sustainability, 60 on adequacy, and a good 84 on integrity.
According to the research, the UK result could be increased by restoring the requirement to take part of retirement savings as an income stream, and raising the minimum pension for low-income pensioners.
The government should also increase the coverage of employees and the self-employed in pension schemes through auto-enrolment, and increase the level of contributions to occupational pension schemes.
Measures should also be taken to raise the level of household saving and reduce the level of household debt, the research stated.
The index, supported by the Victorian Government of Australia, is a collaborative research project between the Monash Centre for Financial Studies – a research centre based within Monash Business School at Monash University in Melbourne – and professional services firm Mercer.
The Netherlands had the highest index value (81), and has consistently held first or second positions for 10 out of the past 11 reports. Thailand had the lowest index value (39.4) in this edition.
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