UK pensions system ranked 9th in the world
14 October 2014
Auto-enrolment has pushed the rating of the UK’s public and private pensions up the ranking of the world’s best pension systems, but greater participation or contributions are needed to reach the level of Australia or even Chile.
Many thanks to Pensions Expert for this report:
The UK scored 67.6 out of a possible 100 this year, up from 65.4 in 2013, placing it ninth in the world according to the 2014 Melbourne Mercer Global Pensions Index. The Mercer index takes into account a basic public pension, a public mandatory and contributory system, a private mandatory system, a voluntary system and support for elderly people outside pensions.
Denmark was deemed to have the best pension system, receiving an A rating due to its well-funded system with good coverage, “high level of assets and contributions, the provision of adequate benefits and a private pension system with developed regulation”.
The UK’s pension system has been awarded a B grade, meaning “a system that has a sound structure with many features, but has some areas for improvement that differentiates from an A-grade system".
The report attributed the rise in rankings to more people paying into the pensions system due to auto-enrolment. According to experts, due to the reform there are now 4m more pension savers in the UK. However, industry experts are still concerned that the low levels of contributions could be detrimental to some. The initial total contribution level of 3 per cent will be raised to 8 per cent by 2018, which some have deemed too low to ensure an adequate retirement.
To increase the UK's ranking, the authors suggest:
· raising the minimum pension for low-income pensioners;
· increasing the coverage of employees in occupational pension schemes;
· increasing the level of contributions to occupational pension schemes;
· raising the level of household saving; and
· increasing the labour force participation rate at older ages.
But it remains to be seen whether there is the political will in this country to drive up contributions.Mercer also warned that the new freedoms introduced in this year's Budget could have a negative impact on next year's score by loosening restrictions on accessing retirement savings.
The top ten are: Denmark, Australia, Netherlands, Finland, Switzerland, Sweden, Canada Chile, UK, Singapore.