Key Takeaways
- • Mercer recommends raising the minimum auto-enrolment contribution for defined contribution pensions in Britain from 8% to 12%, phased in over time, which it estimates could add 10 billion pounds ($13.21 billion) in contributions annually.
- • Mercer says the change would help narrow the "gender savings gap," in which women retire with average pension savings of 69,000 pounds versus 205,000 pounds for men.
- • The recommendation is set out in a reform "road map" from Mercer, issued as Britain's new Labour government conducts a review of the pensions industry.
- • Mercer's proposal is linked to boosting domestic investment in productive assets such as infrastructure and green technology, with DC schemes expected to contribute more to unlisted companies.
- • Under the Mansion House Compact, signatories including Aviva, Legal & General, Aegon and M&G agreed to invest 5% of DC pots in unlisted companies by 2030, up from 0.36% (793 million pounds) currently, though Phoenix Group chair Nicholas Lyons cautioned on deployment pace.
Summary
Pensions consultant Mercer said on Wednesday that the minimum amount workers and employers pay into pension pots in Britain should be raised to address a retirement savings gap between men and women and to increase investment in productive assets, according to Reuters. In a reform "road map," Mercer recommended that the government consider increasing the minimum auto-enrolment contribution for defined contribution schemes to 12% from 8%, phasing the change in over time. Mercer estimates this could generate an extra 10 billion pounds ($13.21 billion) in contributions annually.
The proposal is framed around the "gender savings gap": women currently retire with average pension savings of 69,000 pounds, compared with 205,000 pounds for men. Mercer attributes the disparity to factors including career breaks to have children and part-time work. Calls to raise minimum contributions to about 16% were made last year but made little progress amid Britain's cost-of-living crisis.
The recommendations come as Britain's new Labour government reviews the pensions industry with the aim of delivering better value for savers and creating larger pools of capital for infrastructure and green technology. Cash-strapped Britain relies heavily on private markets to drive investment. Mercer and ten other pension and insurance providers, including Aviva, Legal & General, Aegon and M&G, voluntarily agreed last year under the Mansion House Compact to invest 5% of their DC pots in unlisted companies by 2030, compared with 0.36%, or 793 million pounds, at present.
Phoenix Group chair Nicholas Lyons, who spearheaded the Mansion House Compact, described the situation as a "burning platform" for personal finance and said the 5% target reflects the "art of the possible," since administrators of DC funds would have rejected more ambitious goals. Lyons said the industry must build expertise in investing in unlisted companies, a sector that has long favored safer assets such as government bonds, and cautioned that the pace of deployment remains uncertain: "Also how much can you actually deploy in a year? What are the investment opportunities there? We have to be patient with this," he told a Mercer event.
The proposal is framed around the "gender savings gap": women currently retire with average pension savings of 69,000 pounds, compared with 205,000 pounds for men. Mercer attributes the disparity to factors including career breaks to have children and part-time work. Calls to raise minimum contributions to about 16% were made last year but made little progress amid Britain's cost-of-living crisis.
The recommendations come as Britain's new Labour government reviews the pensions industry with the aim of delivering better value for savers and creating larger pools of capital for infrastructure and green technology. Cash-strapped Britain relies heavily on private markets to drive investment. Mercer and ten other pension and insurance providers, including Aviva, Legal & General, Aegon and M&G, voluntarily agreed last year under the Mansion House Compact to invest 5% of their DC pots in unlisted companies by 2030, compared with 0.36%, or 793 million pounds, at present.
Phoenix Group chair Nicholas Lyons, who spearheaded the Mansion House Compact, described the situation as a "burning platform" for personal finance and said the 5% target reflects the "art of the possible," since administrators of DC funds would have rejected more ambitious goals. Lyons said the industry must build expertise in investing in unlisted companies, a sector that has long favored safer assets such as government bonds, and cautioned that the pace of deployment remains uncertain: "Also how much can you actually deploy in a year? What are the investment opportunities there? We have to be patient with this," he told a Mercer event.
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