The corporation of London are surprised that City employers aren’t as satisfied with pensions as they are!
The intent is to do the right thing for their staff but if the “Global City’s” employees don’t get pensions, what hope is there for everybody else.
I have spoken to a few investment banks, asset managers and brokers of various kinds. The general feeling is that staff are well catered for by a well funded DC workplace pension. Many of them deliver services not just to their staff but to many other employer’s staff.
The gap between the employer’s view and that of their staff does not come as a surprise to me at all. Typically I will hear statements from staff along the lines
“I know I’m in my company’s pension scheme, it’s just I don’t know what to do”.
I feel that way myself, faced with a pot of money that could plummet in value if investments in the magnificent 7 (or perhaps 8 now? ) go wrong. It’s not just that I’m invested in things I don’t understand, it’s that I have very little invested in the UK and nothing that I know of that’s stimulating UK productivity and growth.
As for my contributions. I’m faced with the nastiest , hardest problem in finance. If proof of that is needed, almost everyone I know (including myself) don’t know how to set my pension up so that it doesn’t run out on me as I get old and that it does keep up with inflation as the state pension does.
The answer from the City of London is “financial wellbeing” which is not as woolly as you’d think.
Closing this gap is essential to delivering the UK’s broader growth agenda. Initiatives such as the Mansion House Accord demonstrate the scale of opportunity, unlocking significant long-term investment into UK businesses, infrastructure and high-growth sectors. But realising this potential depends on a workforce that is engaged, financially capable, and supported to make informed long-term decisions.
To improve workplace financial wellbeing this new report, produced in collaboration with nudge, is calling on employers to prioritise more personalised, life-stage financial well-being support that centres on education and is built around real-world scenarios. Roundtables conducted as part of the research showed that employees felt that current support was often too generic.
The report also calls on government and regulators to clarify guidance vs regulated advice boundaries; expand trusted financial education support into the workplace; and support consistent employer standards.
I agree with all of this and the essential point that employees don’t know what wage in retirement they will be getting. Everything comes back to two simple numbers, what is the tax-free cash and what the pension I will get when I need my pension?
Can we please stop assuming that people working in the City of London “get pensions“? Financial well-being is what you get when you know you will be alright when you want to stop working or when you have to stop working through ill-health. The questions that matter are about life and death and what happens for my spouse or partner.
It is about knowing that your pensions are paid from a well invested fund or from the Government. Investment is secondary to an individual to the outcome but I can see a higher level of engagement if you work in the City of London! But even so , I suspect that financial wellbeing comes with a sense of good governance from the people due to pay our pensions.
Financial wellbeing doesn’t need generic education. It needs reassurance that the deferred pay from “pension” deductions from pay, will offer a wage to live on – in retirement.
With the flexibility and decision on how to take a pension being given to individuals. It’s confidence that’s needed to make the right decisions. Unless you are Ina position to outsource advice to a financial adviser. That confidence is needed over life, from pocket money to apps to debit cards, lending , mortgages , saving and investing. People have to consider all these things. Not Just looking at a pension pot in isolation.
I suppose my answer is that most things don’t need managing like the modern “pension”.
While the CDC model changes who bears the longevity risk (moving it from the working members and employer to the short-lived members), it cannot escape the fundamental laws of maths.
Regardless of how a scheme is structured, the absolute size of the total investment pot remains the primary determinant of retirement income.
No amount of clever pooling or risk-sharing can compensate for inadequate contributions or poor investment returns. If the total pot is too small, the income produced will be low for everyone—regardless of whether you die tomorrow or live to a hundred.
To continue to imagine that CDC beats pots is rather like producing an omlett without eggs.
Clearly risk has already shifted to the most apathetic. Indeed some employers might apply the much quoted “60% more” to reduce current contributions.
If you think that CDC will be invested like DC, you have missed the point of my recent blogs. While DC is constrained by the de-risking of individual pots , CDC is not. The time horizon of CDC is infinite, it can only close in extreme circumstances. John, I know you believe in effective investment, I think CDC will be considerably more effective in its investment than DC pensions. Unless very big (like Nest) there really is not much competition.
Henry, if we agreed on everything one of us would be unnecessary
In the states, I’m finishing my 47th year in corporate employee benefits. During that time period, it is clear what workers want (again, at least here in the states).
Here, median tenure of American workers has been less than 5 years for the past 7 decades. Median tenure of American workers age 50+ has been less than 10 years for the past 5 decades.
In other words, American workers have had 11 different employers on average by the time they reach age 50 (averages can be deceiving, of course). And, two thirds to three-fourths of American workers who retire at their Social Security Full Retirement Age of 67 (born on or after 1/1/60), will have a different employer than the one they had at age 50!
So, what do most want? One thing they don’t want is a series of DB pension plans where accruals stop and are frozen each time they change employers – with a deferred commencement date at age 65 or 67. All studies in America show a vast majority of workers who once had a DB pension plan have, where offered, elected a lump sum cash payment to be spent immediately or rolled over to invest in an Individual Retirement Account.
No, American workers want portability and control. When they leave an employer, most fail to even consider leaving the monies in the predecessor employer’s plan – even where it is superior to the next employer’s plan or an Individual Retirement Account. They fail to recognize that the plan is a separate legal entity here in the states.
Yes, some want you to be responsible for them, but those are the same workers who don’t realize that the pension is part of their total rewards (such that they are receiving less in other benefits or wages) – a plan where the plan sponsor controls everything – accrual rates, funding, payout provisions, etc. And, in the states, we are down to only about 10MM Americans in the private sector who are actively accruing a benefit in a defined benefit pension plan, where most of those plans now have cash balance formulas (DC look-alike) and lump sum payout provisions!
So, todays pension plans in the States are primarily for public employees and represented employees. Those lucrative public pension promises have mostly been bailed out only by superior stock market performance since 2008 – funding was SOOO bad, some states and cities still have significant issues. Those union pension promises often far exceeded agreed upon funding, and many have now been bailed out by a $90+ Billion allocation from the Biden Administration – where, because of massive deficit spending, those costs were added to our national debt, meaning the bailout will be paid by generations too young to vote and generations yet unborn … people who themselves, won’t ever have a defined benefit pension plan! .
Thank you BenefitJack for outlining the differences between the Members of UK Pension Schemes and their US counterparts.
There appears to be an almost 180 degree opposite direction with carious studies showing UK pensioners valuing the secure annual income of a DB pension over a DC capital pot, however used at retirement.
Part of the reason is tax – I am not sure of the position in the States but if a UK pensioner withdraws his capital pension pot (e.g. to buy a house or even pay off a mortgage), he can end up paying up to 45% income tax where he might pay only 20% if he received it in annual instalments.
The second point is that in retirement DB pensions are cumulative, so it doesn’t matter if you have 5 different DB pensions, because it is the scheme or the employer who bears the administration costs. Also DB pensions are individually secured by the Pension Protection Fund and are required to provide annual inflation related increases (inflation having long been a major concern to the average UK citizen – a concern that only recently seems to be developing in the US) and spouse’s pension rights.
The third and probably most significant reason is attitude to risk. It appears that the average UK person is far more risk averse than their US counterpart, valuing income over capital gains. You can see an analysis of this by Professor Narmin Nahidi at https://henrytapper.com/2026/04/22/englands-best-pension-academics-arent-english-here-a-dynamite-young-lady-talking-about-risk/
In the UK investing in the stock market for a capital gain is often viewed as a form of gambling and as such a preserve of the rich. Dividend income is valued far more than capital gains. Hence the higher dividend yield of UK listed stocks (3.1% p.a. on the FT 100 vs 1.5% on the US dominated MSCI World).
Similarly the concept of having to pay management charges let alone paying for financial advice, is viewed as a preserve of the rich, which the average UK person does not consider themselves to be or likely to be. Hence the emphasis on the lifestyle in retirement represented by the retirement living standards published by PensionsUK.
Thank you for highlighting the differences.
There are likely to be some in the UK who say that it is the US that has got to learn and pay greater attention to the lower paid cohorts approaching older age.
Thanks. Sorry about length of response.
“There appears to be an almost 180 degree opposite direction”
- Agree. However, that may be, in part, because of how many Americans rely on the Social Security system as their base retirement benefit, and, how Social Security provides much more than a base level of benefits to median and below-median wage earners.
“Part of the reason is tax”
– Maybe, maybe not. In the states, distributions prior to age 59 1/2 are enerally subject to income taxes (typically at higher marginal rates because they are in addition to wages) plus a 10% penalty tax. Not unusual to see a combined tax for an early distribution of 22% federal, 4% state and 10% penalty, or 36%. However many rollover the lump sum distribution to an Individual Retirement Account - a DC type account that can be annuitized without penalty tax.
“The second point is that in retirement DB pensions are cumulative, so it doesn’t matter if you have 5 different DB pensions, because it is the scheme or the employer who bears the administration costs.”
- Same in US, except most DB pension plans require 5 years to vest, and don't give credit for predecessor industry service. So, because median tenure of American workers has consistently been less than 5 years for the past 7 decades, most end up with gaps in accruals even if every employer has a DB plan, and most don't.
“Also DB pensions are individually secured by the Pension Protection Fund and are required to provide annual inflation related increases (inflation having long been a major concern to the average UK citizen – a concern that only recently seems to be developing in the US) and spouse’s pension rights.”
- No such requirement in the states, so, the buying power of the monthly income erodes. And, only public employee pensions consistently have post-retirement Cost of Living Adjustments, where taxpayers, most of whom don't have any pension, must shoulder the cost of the lucrative pensions politicians offer to buy votes from teachers, police, firefighters, and other bureaucrats.
“The third and probably most significant reason is attitude to risk. It appears that the average UK person is far more risk averse than their US counterpart, valuing income over capital gains.”
- Maybe, maybe not. I think most Americans are oblivious to a number of the risk considerations in pre-retirement preparation.
“In the UK investing in the stock market for a capital gain is often viewed as a form of gambling and as such a preserve of the rich.”
- In the states, given the widespread use of DC plans (120+MM accounts, with ~$14 Trillion US in assets) and IRAs (60+MM households with $20+ Trillion US in assets) - dwarfing defined benefit pension plans (where less than 11 MM Americans (excluding public employees) are actively accruing a benefit - and where most of those DB plans are DC look alike plans with cash balance formulas that provide workers the opportunity to take a lump sum distribution).
“Similarly the concept of having to pay management charges let alone paying for financial advice, is viewed as a preserve of the rich, which the average UK person does not consider themselves to be or likely to be.”
- Americans, even thouse with hundreds of thousands of dollars in tax-preferred retirement savings may have it backward - failing to recognize their ignorance of the various risks in retirement.
“There are likely to be some in the UK who say that it is the US that has got to learn and pay greater attention to the lower paid cohorts approaching older age.” Maybe, maybe not.
- In the States, if you have been consistently employed for 35 years, and defer commencement of Social Security until the full retirement age (67 for those born in 1960 or later, and have a non-working spouse of the same age), the Social Security system will replace as much as 91% of a lower-paid worker's Average Indexed Monthly Earnings (AIME).
For example, in 2026, for someoe at the 25th percentile, $31,200 (AIME) , the Social Security Primary Insurance Amount (the amount paid when benefits commence at Full Retirement Age) would be calculated for an individual reaching age 62 in 2026 as follows:
(0.91286)+((2600-1286)0.32) = $1,577.88.
to that, there is a spouse’s benefit of 50% (if the spouse is at his/her Full Retirement Age), or $788.94, which totals $2,366.82, or 91% pay replacement.
The benefit is indexed for inflation once payout commences (as are wages for calculating benefits prior to commencement).
America’s Social Security system, and specifically its benefit provisions are highly progressive.
For comparison, America’s only social insurance benefit that is more progressive than Social Security is our Medicare system, especially for those whose income is so low that they are dual eligible (Medicare and Medicaid, combined).
Best to you,
Jack