With all the savings – or lack of savings – conversations, it’s easy to forget about actors such as employers and trustees who manage pension schemes, and why they do it
The more savings people have in retirement, the more they can contribute, and the lower the cost to the working population. In fact, a better saved retirement population may well make a net contribution to the economy, shaking off any suggestion of being burdensome
But more importantly, it matters to retired people themselves, who will enjoy a better quality of life if they can slow down or stop work at a time of their choosing while continuing to do the things they enjoy. That works for those who have decent retirement savings.
I’ve yet to meet someone who regrets having saved.
The UK pensions system isn’t without its critics, but it does have a lot going for it when you compare it with other systems around the world. Mercer Global Pension Index (2018) ranks us 15th out of 34 countries. While this might not seem great, it recognises the positive aspects of our system compared to others.
Higher ranked countries have their own problems. Australia is wrestling with the findings of its Royal Commission report, criticising the way in which some of its ‘super’ funds are working and citing poor performance, high charges and misaligned advice incentives.
The Dutch collective defined contribution system has had to endure the challenge of a long period of low interest rates and is now facing up to the very real prospect of either having to reduce pensions in payment, or face a significant challenge from younger people on the grounds of intergenerational unfairness.
In the UK, no matter what your view on the current state of our politics, there is at least relative consensus around the main pillars of pension saving. A single state pension set at around one-third of average earnings looks set to stay as a basic income for most people in retirement. Other savings – a workplace pension for most – will top that up.
Few people would deny the success of nudging through automatic enrolment. Over 10 million people are now included and less than one in 10 chooses to opt out. Automatic enrolment has certainly still to fully mature, but the system has so far been very stable. This has been transformational for workplace pension coverage.
Pension freedoms have not led to the carnage of abandoned sports cars that was predicted. If anything, the regulator’s finding that people are investing pension proceeds in cash suggests we may have a problem with prudence, not imprudence.
One issue most of us would agree on is the need to do some work on pensions taxation. Whether it’s the perceived structural unfairness of the majority of tax relief being paid to higher earners, or simply the complexity of managing their myriad allowances, few people say it is fit for purpose in its current form.
When pensions taxation starts to impact the availability of doctors in our NHS, it certainly gets some attention. Unlike other aspects of our retirement saving, I’d suggest the current design of tax relief is overly mature, and perhaps becoming unstable.
Shadrach is a Trending Journalist. His first job was as a newsreader and journalist at an award winning magazine. He spends most of his time scouring the internet for the hottest topics to share with his readers.