The Association of British Insurers (ABI) believes there is no one perfect model to copy, but that there are ‘useful lessons' to be learned from pensions policies around the world in order to address the UK savings gap.
Speaking at a seminar hosted by the ABI yesterday, Nigel Peaple, ABI policy adviser on pensions and savings has said that there are various lessons the UK might consider as its pensions debate continues.
Peaple, the author of a report titled 'UK Pension Reform – Lessons from Abroad', concludes there is no "one-size-fits-all" solution waiting ready-made in any other country. He argues pension arrangements need to be structured to suit individual circumstances within a country.
He also dispels the idea of compulsion as an immediate solution, arguing compulsion on low earners may take money away from essential spending.
Additionally, compulsion may distort investment flows, while if set at the wrong level may also prove inadequate in quaranteeing sufficient income for retirees, he says.
Analysing the pension systems of Australia, New Zealand, Sweden and the USA, Peaple says he believes an effective pension regime needs a "sound state pension at its core".
If income from state pension falls below 40% of the average male earnings there would be major pressure to prevent further decline, he says.
Additionally, means testing can also be structured to encourage voluntary saving, Peaple believes. He points to the Swedish model, where eligibility for a state guaranteed minimum pension is based on entitlement to the main contributory state pension. Savings in all other forms of pension have no bearing on those payouts.
Getting into the mind to encourage people to save is also an issue mentioned in the report, which says ‘inertia’, and ‘self interest' can all be used to encourage additional saving.
Peaple concludes: "Voluntarism can be made to work if properly supported by automatic enrolment into company pensions, workplace advice, financial education and a carefully targeted rage of incentives."
David Harris, managing director at TOR Financial Consulting, drawing on an Australian model believes while compulsion may not be an attractive concept from a political front along with industry participants who "embrace self interest and short-termism", it has certainly changed the thinking and saving habits of people in Australia.
He says: “Its worth noting too that the words have more than one meaning: coercion in one sense, and craving or need in another. Forces such as extended ageing, sclerotic pension systems and modern culture are combining to produce a need which may only be met in the long-term by compelling the workforce to save for retirement.”
Harris also warns of an ‘inertia’ and ‘myopia’ which has taken hold of young people in the UK.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Gareth Vorster on 020 7968 4554 or email [email protected].IFAonline
Since November 2008
Share issue oversubscribed
PARTNER INSIGHT: For many advisers, outsourcing to a multi-manager or discretionary fund manager makes sense, allowing them to focus on the adviser-client relationship
Events, information and other services
An added tier of asset management can of course deliver additional benefits for certain investors, writes Graham Bentley - just be sure you can justify it to the regulator and, especially, the client