The UK dropped out of the top 10 in the Mercer CFA Institute Global Pension Index, now sitting at 11th place with a score of 71.6 while the Netherlands, Iceland, and Denmark kept their top three positions for another year.
The index highlights areas for reform to improve trust and long-term stability by evaluating 48 global retirement income systems on the basis of sufficiency, integrity, and sustainability.
According to the analysis, the UK may strengthen its pension system by boosting auto-enrolment contribution levels, extending the reach of private pensions, and bringing back the requirement that a portion of retirement assets be taken as an income stream rather than a lump sum.
Quantum Advisory partner and actuary Stuart Price says: “It is disappointing to see the UK’s pension system slip out of the top 10 of the Global Pension Index this year. Its ranking places it as a ‘B’ grade system within the index, suggesting that the system has a sound structure and many good features but that there are clear areas for improvement and reform.
“The state pension only provides 22 per cent of an individual’s average earnings, so private pension saving, whether in defined benefit, defined contribution or collective defined contribution schemes, is crucial to allow people to retire with a decent level of income and at a reasonable age.
“All employers must provide a workplace pension scheme or arrangement and automatically enrol employees into it. Auto-enrolment has worked to a degree but would benefit from further reform which could improve the UK’s index ranking. The number of individuals saving for their retirement has increased substantially since auto-enrolment was introduced in 2012, with 76% of the working population contributing to their pension schemes.
“However, auto-enrolment could be extended to include younger workers from age 18, lower earners and the self-employed, in addition to increasing the total contribution rates from 8 per cent to at least 12 per cent. Following a review in 2017 which received royal assent in September 2023, plans are in place to lower the age of eligibility for auto-enrolment but frustratingly no date has been set to introduce this legislation.”
