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Global survey fails to find pension solution

Compulsory saving in pensions is neither simple nor efficient, says the ABI, after researching pension arrangements around the world.

The ABI found evidence that voluntary saving can be made to work if it is supported by fiscal incentives, workplace advice and auto-enrolment as long as means-testing is structured not to deter investors.

The ABI looked at the pension arrangements in Australia, New Zealand, Sweden and the US in its paper, UK Pension Reform – Lessons From Abroad? Each system was found to have its own flaws but the ABI says lessons can be learnt from each of the countries.

Policy adviser and author of the report Nigel Peaple says the high leakage rates from US occupational schemes implies that the UK’s locking away of pension savings until retirement is justified. The New Zealand citi- zen’s pension model has been much touted and guarantees 39 per cent of average earnings for everybody compared with 26 per cent in the UK, but British workers who have completed 44 years of employment will see that rise to 47 per cent of average earnings. The New Zealand system is criticised for a lack of tax incentives for personal saving which has resulted in very low retirement savings rates.

The Australians are applauded for having a means-testing system that does not discourage saving but the compulsion element has reduced non-retirement savings markedly.

The Swedish system combines a state pension with a contributory pay-as-you-go model. The ABI says it is expensive and complex but it provides a decent retirement income of 58 per cent of average earnings after 40 years’ work.

Peaple says the main lessons from the overeall exercise are that there is no one size fits all solution, voluntarism can work and compulsion is not an easy solution.

He says: “Policymakers may wish to consider noting the evidence that voluntarism can be made to work if properly supported by automatic enrolment, workplace advice, financial education and a targeted range of incentives.”

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