It could be argued that the lack of preparation comes from the fact UK workers aren’t legally required to contribute to any form of pension.
Experts have stated this has resulted in the UK having five times the number of pensioners in poverty compared to Iceland.
State pension reforms are taking place across Europe with France and Spain in the spotlight. As France swallows the reforms to their pension system, the UK Government reconsiders the current state pension age.
As the cost of living crisis continues, pension savers may be wondering if this is the best time to be saving into their pensions, or whether they should opt-out to pocket more cash to pay rising bills.
However, the financial freedom to choose to opt out of pension schemes means that Britons are “far more likely to face financial pressures in retirement due to a lack of preparation in advance.”
If workers are allowed to be more financially ‘free’ then a conversation on long-term finances needs to be had. In order to spotlight the need for the UK pensions industry to tackle this issue, digital pensions provider Penfold has revealed how the UK’s pension system stacks up globally.
Countries such as Iceland, the Netherlands and Denmark have robust retirement income systems that deliver good benefits and prepare their pensioners better financially.
Meanwhile, UK workers aren’t legally required to contribute to any form of pension. Full-time workers should be auto-enrolled into a company scheme, but they are free to opt-out if they choose.
Another area where the UK’s pension system should improve is outlined in Mercer’s Global Pension Index.
While the UK takes the 10th spot (ranked on levels of adequacy, sustainability and integrity), the Institute recommends “increasing contribution levels required under auto-enrollment” to boost the system.
Considering many are already struggling to save with their current income, the burden of a higher contribution should be shared equally between employer and employee.
On workplace contributions, Denmark has the UK beat. Danes typically have 15 percent of their salary going into their pension every month, the average Briton only has eight percent.
In Switzerland, mandatory contributions increase with age, which results in 81 percent feeling that their retirement incomes will be sufficient to live off of. In contrast, only 38 percent in the UK feel confident that their pensions will allow them to live comfortably.
Critically, 15.5 percent of UK pensioners are currently in poverty, with savings supported by a state pension (a maximum of £203.85) simply not being enough to cover the cost of living.
Critically, 15.5 percent of UK pensioners are currently in poverty, with savings supported by a state pension (a maximum of £203.85) simply not enough to cover the cost of living.
In comparison, only three percent of pensioners live in poverty in countries with higher average pension contributions, such as Iceland, the Netherlands and Denmark.
The UK Government does have rewarding schemes aimed at aiding savers, such as the 25 percent top-up on every pension contribution made. However, due to a lack of education on pension savings, many are left unaware of these kinds of opportunities.
Chris Eastwood, co-founder of Penfold explained the UK could learn from highly-rated pension systems such as those in Iceland, Netherlands and Denmark.
He said: “Clearly the UK’s approach to employer contributions compares poorly with EU countries such as Denmark, where years of policy and regulation have shaped a different perspective on long-term saving and so employees and employers are willing to contribute more.
“The current minimum pension contribution in the UK is simply not enough. The pensions industry and government alike need to work together to inspire a culture shift that gets people comfortable with saving more of their income for their retirement.
“Of course, the current cost of living crisis certainly makes changing financial behaviours hard. But we strongly encourage workers to speak to their employer or go directly to their pension provider to get an accurate understanding of their forecasted retirement income and adjust contributions if they’re able to.
“With pensions, knowledge is power and the earlier you take action the longer your money has to grow and benefit from compound interest”
