New Year, New Pension

It’s that time again, in the UK, at least - the time those of us who work in tax wish our fellow colleagues a happy new tax year, tongues firmly wedged into cheeks.

But this year got me thinking more about the impact on pensions. The UK state pension’s “triple lock” guarantee means that state pensions have gone up 8.5% today - another huge increase as a result of high inflation in recent years, resulting in weekly entitlements of £221.50. This is welcome, although as the worldwide trend towards dwindling public resources for pensions (coupled with longer life expectancy) continues, to what extent is this model sustainable?

Further, according to OECD research in 2023, the UK state pension’s income replacement rate for the average earner stands at only 21.7% versus an average of 49.5% in the EU27 and 42.3% against the OECD-38. This woeful shortfall is only partially closed by the use of autoenrollment pensions (e.g. NEST).

More widely across Europe, further research across 15 countries shows the majority of individuals recognise that saving outside of mandatory pension plans (social security plus any mandatory occupational plans) is required to maintain a decent standard of living. Yet two-fifths of those surveyed are not saving, with lack of disposable income cited as a key reason.

For me, the warning is clear: employers must better empower their employees to make better choices and secure a prosperous post-retirement lifestyle. This is achieved through financial education initiatives and a decent retirement programme within their suite of employee benefits.

I help my clients across all facets of their employee pensions and benefits programmes worldwide. DM me if you'd like to discuss the #retirementadequacy of your programme.

Sources: Pensions at a Glance 2023 : OECD and G20 Indicators | OECD Pensions at a Glance | OECD iLibrary (oecd-ilibrary.org); https://www.insuranceeurope.eu/news/3023/pensions-survey-more-than-one-third-of-europeans-are-not-saving-for-retirement