The UK’s mandatory pension provision is nearly half the OECD’s average and retirees’ replacement rate has dropped by 9 per cent in a decade.
The research, carried out by TISA, shows the UK’s net replacement rate (NPR) is just 28.4 per cent compared to the OECD average of 58.6 per cent.
Turkey has the best mandatory provision at 93.8 per cent.
When voluntary schemes are included in the research, the UK fares better but is still well below the OECD average. The UK’s NPR rises to 61 per cent compared to an average of 65.4 per cent across the OECD when auto enrolment minimum contributions are considered.
If auto enrolment minimum contributions were to increase to 12 per cent and based on the whole salary, the NPR would increase to 77 per cent.
TISA is calling for auto enrolment contributions to increase to 12 per cent of full salary, to ensure savers in the UK have a more adequate pension provision for later in life.
That is why TISA proposes incremental changes through a contribution escalation schedule spanning six years, following the implementation of the mid-2020 proposals agreed in the 2017 AE review. This will allow a period of several years for all parties impacted to prepare for the changes and for them to be implemented in a gradual way.
TISA head of retirement Renny Biggins says: “If the UK is to continue in its progression to offer a truly world-class pension system then, other than making further enhancements to the state pension which we believe would not be palatable to Government or the public, we need to increase AE contribution levels to enable us to compare more favourably with our international peers. We believe an increase in minimum contribution rates to 12 per cent of salary would just about achieve a balance between an inertia approach and the opportunity to achieve enhanced outcomes through engagement.
“It is a collective Government and industry responsibility to ensure AE remains a success, relevant to a constantly changing backdrop of personal wealth, taxes and working patterns, and continues (in combination with state pension) to produce good consumer outcomes which are comparable with our international peers. We also recognise that it can realistically take several years for agreed proposals to make their way into legislation, which is why we call for a second official DWP AE review to take place no later than 2022 and for future statutory reviews to take place periodically.”
