It’s been a week when everyone from PIC to PPI and stations between has been asking why we’re not making more progress turning our saved wealth to pensions. I modified my view of PIC’s staff that they hated their workplace savings scheme to “dislike” but semantics won’t change fundamentals, people do not see the prospect of an uncertain pot as a substitute for a promise wage for life when they choose to resign their wage from work.
The PPI launched the results of its latest survey on Wednesday
It’s a frolic through global DC systems which concludes that no-one has yet nailed the nastiest, hardest problem in finance and all are succeeding and failing in different ways.
The distribution of pension assets in the OECD is largely covered with only Japan and Switzerland ignored. Several of the “other” systems are analysed, including Denmark, New Zealand, Chile and Singapore.
Each country analysis concludes with a snappy “lessons for the Uk” which are summarised early on
The Dutch are moving towards invested annuities, which provide more certainty than drawdown – especially as regards the “wage for life”, but this is a journey still far from the eventual destination
The US, which holds 2/3 of global pension assets (OECD) is no exempla for the UK
Like the Netherlands, Canada is moving towards annuitisation through invested annuities, and like the Netherlands, policy intentions are ahead of what’s happening for savers.
Of all the OECD comparators, Australia looks closest to the system the UK is aspiring to, but the PPI are far from convinced that the Retirement Income Covenant that it is trying to adopt will provide the perfect balance between state and private pension and housing wealth
Savers are reluctant to swap pots for pensions in New Zealand too, but here the problem is that pension pots are not getting spent (drawn down). The New Zealand approach is based on rules of thumb – an approach espoused by Adrian Boulding and others in the UK (but little adopted)
The Danish system illustrates a different journey towards variable lifetime annuities
While Singapore – the closest the OECD gets to a command economy and a compulsory pension system, gets limited approval. The PPI sees it as impossible for us to emulate.
What can we learn from this tour de force?
The PPI have produced an exceptional piece of work in a fraction of the time it takes the OECD. Its lighter touch makes for easier reading and more intuitive conclusions, here are my five takeaways, read the report and see if you agree with me
- The policy intent generally (the USA being an exception) it for DC saving to provide pensions not just pots
- Countries are looking to collective solutions delivered individually (the investment annuity)
- Compulsion is doing a good job getting the money in , but is unpopular in extracting savings back into the economy through annuities.
- The various nudges applied by Government (defaults, rules of thumb and regulation such as the Australian RIC) are yet to take off
- In the meantime, with the absence of any system relying on defined benefit workplace pensions, the state pension is universally , the safety net.
Britain is moving at some pace towards its own retirement income covenant, we don’t have mandatory annuities anymore but we are moving fast towards our own Retirement Income Covenant as Government realises that “pots” without “pensions” represent an unacceptable social and economic risk. We need people to avoid destitution and we need their retirement savings re-circulated to keep our economy going and growing.