The OECD's 2014 study into established pensions markets has concluded that changes to auto-enrolment scheme design, including tougher rules on opting out could improve UK coverage rates overall.
The study compared auto-enrolment in Canada, Chile, Italy, New Zealand, the UK and the US to form policy recommendations.
AE has boosted the UK's coverage from an international perspective
Overall, the UK came out pretty well on pensions coverage with 49.8 per cent of employees in a workplace pension scheme in 2013.
This was the first increase in the coverage rate since 2006 and is up from 46.5 per cent the previous year, the biggest increase in the period since OECD figures began in 1997.
The study compared auto-enrolment in Canada, Chile, Italy, New Zealand, the UK and the US to form policy recommendations.
AE has boosted the UK's coverage from an international perspective...
Overall, the UK came out pretty well on pensions coverage with 49.8 per cent of employees in a workplace pension scheme in 2013.
This was the first increase in the coverage rate since 2006 and is up from 46.5 per cent the previous year, the biggest increase in the period since OECD figures began in 1997.
It is difficult to judge exactly how well this compares with the other countries. Only Chile and New Zealand had higher coverage rates, but the latter's 64.4 per cent was calculated as a percentage of people under 65 with a private pension plan.
Chile’s 78.9 per cent was a percentage of people aged 15-64 with a private pension plan, while the UK figure was as a percentage of employees with a workplace pension plan. Still, as an indicator of how the UK is doing on it’s own, the jump in membership last year stands out.
...but tightening rules on opt-outs could drive it further
Stephanie Payet, pension analyst for the OECD financial affairs division, said: “Short irrevocable opting-out windows would help increase coverage rates – for example in Canada, Italy or New Zealand, once you have decided to stay in the scheme it’s for good.
"There are exceptional circumstances where you can leave the scheme but basically it’s for good.”
People who are auto-enrolled in the UK have one month to opt out and have their contributions refunded. Following this they can leave in accordance with the scheme rules if they decide to, but will be re-enrolled every three-years.
Those closest to retirement are facing an income crunch
Another interesting finding relates to the proportion of working-age individuals who are more at risk of receiving a pension income below the average for current retirees, or of falling below their recommended replacement rate.
The replacement rate is the percentage of a worker's pre-retirement income paid out post-retirement. Put simply, what proportion of your salary your pension will pay you.
Most countries have been assigned a single replacement rate, but in the UK the Pensions Commission 2004 laid out different rates depending on income. These ranged from 80 per cent for low-earners to 50 per cent for high earners.
The table below shows people on low incomes, the self-employed, single people and those aged between 55 and 64 all have at least a 50 per cent chance of missing their replacement rate. Only high-income workers and those in the public sector have a lower risk of missing the replacement rate.
All individuals | 40%-49% |
Low income | ≥ 50% |
Medium income | 30%-39% |
High income | <10% |
35-39 | 20%-29% |
40-44 | 30%-39% |
45-49 | 30%-39% |
50-54 | 40%-49% |
55-59 | ≥ 50% |
60-64 | ≥ 50% |
Men (single) | ≥ 50% |
Women (single) | ≥ 50% |
Public sector | 20%-29% |
Private sector | 40%-49% |
Employees | 30%-39% |
Self-employed | ≥ 50% |
The findings are bad news for those on low incomes, those aged 55-64, single people and private sector workers.
While a range of demographics were at greater than 50 per cent risk, the report singled out those aged 60-64 as an area of concern, saying: "They may be worse off than other age groups because they are less likely to complement their state pension with private pension income."
However, it added: "Other age groups may have a comparable risk of having a present value of pension income below the current poverty line."
