Posts Tagged "retirement savings plan"
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
January 28, 2021
Smaller Pensions Don’t Spur More Saving
Most state and local governments provide their employees with traditional pensions, which are nice to have. But not all pensions are equally generous.
The monthly benefits vary from one place to the next, and some governments have cut costs by reducing pensions for their newest hires. Further, one in four public-sector workers aren’t currently covered by Social Security, because their employers never joined the system.
A logical back-up plan for these workers would be to contribute money to the supplemental savings plans that most public-sector employers provide. When the workers retire, they can add the money saved in their accounts – a 401(k), 401(a), 457 or 403(b) – to their pension benefits.
But researchers at the Center for Retirement Research (CRR) find that workers are only slightly more likely to participate in a savings plan if they work for government employers with less generous pensions – a criterion based on how much of the worker’s current income will be replaced by the pension after they retire.
This lackluster response may not be surprising. Workers can see what’s deducted from their paychecks every week but don’t necessarily understand how these deductions – combined with their employer’s contributions – will translate to a pension.
Public-sector workers are probably more aware of whether their employers are part of the Social Security system. But apparently workers don’t consider that either. …Learn More