Same Issues, Different Approach: Divergent Strategies to Increase Retirement Saving in the U.S. and UK
What strategies can the U.S. and UK learn from each other when it comes to promoting retirement savings? Retirement Director Ben Rizzuto discusses.
While nearly 80% of U.S. workers claim to recognize the importance of saving for retirement, 30% are concerned about their ability to do so – and to retire at their target age.1 Not only is this concerning for globally aging populations, but younger generations remain challenged as they focus on paying down debt or saving for a house rather than retirement.
According to a recent study by Eversheds Sutherland, Lessons from Across the Pond, the UK is struggling similarly. As both the U.S. and the UK’s average age grows and pension plans disappear, the study shares how employers and policy makers are exploring new tactics to encourage savings.
Where the UK Leads
An approach that has been highly successful is the UK’s widespread introduction of mandatory auto- and re-enrollment. Since October 2012, the requirement has been phased in and will soon apply to all employers. While individuals can opt out, approximately only 10% have chosen to do so, making the policy substantially more successful than anticipated with its 90% participation rate—up 68% since 2016.2 In the U.S., employers have been slower to adopt auto-enrollment, and little political action has been taken to regulate the approach.
The UK also implemented guidance services to help engage their participants. The government’s free service, “PensionWise,” can be accessed by anyone under the age of 50 with qualified plans. Savers can contact retirement professionals over the phone, online or in person. This access seeks to provide transparency and assistance in workers’ saving options while encouraging informed investors.
Where the U.S. Inspires
Despite the UK’s success with these programs, its contribution rates still fell by 5.5% between 2012 and 2016. While the U.S. has been slow to automatically enroll, it has seen great success with auto-escalation. Fidelity reported that in more than 20,000 retirement plans, 27% of participants increased their contribution and 50% attributed their increase to auto-escalation.2 The UK could use a similar strategy to boost their contributions.
While the U.S. does not offer a program as robust as PensionWise, the U.S. has implemented fee regulation to stimulate transparency around investment costs. Though the UK has begun to examine their fees, they have yet to make a regulatory change.
Finally, a distinctive feature of U.S. retirement plans is the access participants have to assets through loans. While these loans diminish savings and slow one’s progress towards a comfortable retirement, they do offer ways for participants to gain access to funds, and if they’re being used for the purchase of a new home, without penalty. This is yet another approach the UK has been slower to adopt.
An area both the U.S. and the UK have yet to prepare for, however, is protection against digital threats such as data breaches and cyberattacks. With the majority of plans and accounts available online, long-term savings especially needs protection so workers can trust their contributions will be safe.
The U.S. and the UK are facing similar issues when it comes to retirement: both have aging populations and many workers are struggling to adequately save. While the UK has focused on auto-enrollment and education, the U.S. pushed for auto-escalation, fee transparency and flexible loans. As their populations edge toward retirement, there are ample opportunities for both countries to expand their approaches in order to better prepare their workers for a healthy retirement.
1 Willis Towers Watson, 2017 Global Benefits Attitudes Survey
2Eversheds Sutherland, Lessons from across the pond: DC plans in the US and the UK, 2018