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Mercer: Budget freedoms could damage UK pensions sustainability

Chancellor George Osborne’s Budget reforms will have a negative impact on the long-term sustainability of the UK pensions system, global consultancy Mercer claims.

Auto-enrolment has helped the UK improves its score in the annual Melbourne Mercer Global Pension Index of private and public pension systems around the world, but the introduction of new flexibilities for savers from April 2015 “would likely negatively impact on the UK score next year”.

The UK is currently ranked 9th out of 25 in the index, which measures the adequacy, sustainability and integrity of national pension systems.

Mercer partner Deborah Cooper says: “The UK has previously struggled with issues around sustainability, mainly due to the number of people covered by our pensions system. The introduction of auto-enrolment, which is currently being phased in, has helped improve the sustainability rating in this year’s index.

”This will continue to improve over the next five years as the level of contributions increases and auto-enrolment completes.”

However, the consultant adds: “The process of significantly relaxing restrictions around accessing pension savings by opening up more alternatives to annuitisation would likely negatively impact on the UK score next year.”

Denmark tops the index, with Australia and the Netherlands in second place.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I suppose it depends on what assumptions and weightings are applied in the Mercer scoring. It would be interesting to know how they have reached the conclusion that relaxing restrictions around accessing pension savings by opening up more alternatives to annuitisation would likely negatively impact on the UK score next year.

  2. Perhaps is it just because the flexibility proposals are a clear sign that the policy makers are happy to use pensions as a political football. Which does not look very sustainable to me.

  3. How can this be negative?

    If the UK save more, have greater access to their savings, then I fail to see how it can reduce the score. If funds can be passed down if unused to assist the next generation this has to be positive.

    If it removes the reliance on the state system, reduces the need and liability of the state pension, how on earth does this produce a negative outcome. I personally would have thought that the more the individual saves, the great the responsibility for their retirement is placed on the individual , the less dependence on state funds would be a positive outcome.

    If being reliant on state funds in retirement is the higher score option, then Greece before its collapse must have ranged very highly. I wonder if they would agree today, most state employees are receiving less than a third of what they where promised.

    Statistics, its a funny old world and depending on the information in, will depend on the answer out. Deep Thought had the answer, its forty two.

  4. “The UK is currently ranked 9th out of 25 in the index, which measures the adequacy, sustainability and integrity of national pension systems.”

    Yes and it will get worse. But this is really a bit of a false picture. Out of 34 OECD countries when it comes to Gross pension replacement rates by earnings the UK comes dead LAST! With a rate of 34%. When you then consider other major economies only S. Africa and Indonesia rate worse.

    What an indictment. No wonder they are trying to make the private sector and individuals pay for their own pensions. What of Government responsibility? Or is Foreign Aid, MPs salaries and a host of other non-essentials more important? Indeed what exactly do we get for all the taxes those in employment and paying tax for 40 years or more actually get?

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