March 23, 2021

UK Pension Reforms Show Some Promise

Unlike the United States, the United Kingdom has implemented bold reforms to its retirement system over the past decade.

Two of the biggest changes were gradual increases in the minimum age for collecting a pension under the national social security program and requiring private employers to automatically enroll their workers in an employee savings plan.

The goals of the reforms were to keep government spending in check and encourage individuals – who are living longer – to work longer, while helping them build up more private savings through employer-based plans. On balance, the notion is that workers will end up better prepared financially when they retire. Time will tell how successful these reforms will ultimately be.

But, so far, the results have been somewhat promising, concludes an Institute of Fiscal Studies report on workers’ changing expectations and attitudes about their retirement prospects.

In a major reform to private-sector plans, lawmakers started expanding coverage in 2012 by requiring that employers – the largest ones were first –  automatically enroll workers earning more than £10,000 (about $14,000) in a retirement savings plan. The total contributions to the plans must now be at least 8 percent of each worker’s earnings, with employers providing at least 3 percent.

This reform seems to have enhanced workers’ sense of financial security. In 2017, 78 percent said in a survey that they expect to get some retirement income from an employer savings plan – up from 63 percent in 2013. And while workers are permitted to opt out of the plans, they are doing so at consistently low rates.

On the retirement front, the minimum age to collect benefits under the U.K. social security system, the National Insurance Scheme, has risen dramatically for women. A decade ago, they could collect a pension at 60, but that had increased to 66 by last year. They are now in line with men, whose minimum age was 65 for many years and also rose to 66 last year. In the future, the increases are expected to continue: a 50-year-old worker would not be able to collect his pension until he is 68. …Learn More

November 29, 2018

Boomers Find Reasons to Retire Later

It is one of “the most significant labor market trends” in the United States, says Wellesley College researcher Courtney Coile.

She’s referring to big increases since the 1980s and 1990s in the share of older Americans in the labor force, including one in three men in their late 60s.

As for women, the baby boomers were really the first generation to thoroughly embrace full-time employment. Older women’s participation in the labor force hasn’t quite caught up with their male coworkers, but they’ve made impressive strides since the 1980s and have rapidly closed the retirement-age gap.

Given the implications of this trend for retirement security – the longer people work, the better off they’ll be – Coile and many other researchers have investigated what’s driving it. They agree on several things that are changing the retirement calculation.

College. College graduation rates have increased dramatically over the past few decades, and people who’ve spent at least some time in college tend to remain in their jobs longer. This trend has played a big role in the increase in baby boomers’ participation in the labor force, Coile said.

Social Security. Three major reforms to the program have boosted U.S. retirement ages. A 1983 reform is slowly increasing the age at which workers are eligible to receive their full benefits, from 65 for past generations to 67 for workers who were born after 1959. This amounts to a significant benefit cut at any given age that a retiree claims his benefits. Various studies show that this has created an incentive to delay signing up for Social Security in order to increase the size of the monthly benefit checks.

The 1983 legislation also played a role in pulling up the average retirement age by providing larger monthly benefit increases for people who delay Social Security beyond their full retirement age. In 2000, a third reform ended the temporary withholding of some benefits that had been in place for people in their late 60s who worked while simultaneously collecting Social Security.

Employer retirement plans. Two employer benefits that encourage people to retire at relatively young ages have largely gone by the wayside in the private sector. …Learn More