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The numbers are similar, confirming that the crisis of inadequate retirement income crosses borders, oceans and international time zones.
Driven by a range of factors such as increased longevity, an aging population, dwindling occupational pension coverage, and inadequate retirement savings, policymakers and others are awakening to the realization that a sizeable percentage of their populations aren’t accumulating sufficient income to sustain a secure retirement.
A recent paper from the National Institute on Retirement Security (NIRS) compares retirement preparedness in the United States and the United Kingdom, concluding that while the retirement deficit is similar in both countries, it is being addressed more effectively in the UK through policies that include auto enrolment and mandatory employer contributions.
The study, The United Kingdom’s New Retirement Savings Program, co-authored by Jennifer Erin Brown, manager of research at NIRS, and John A. Turner, director of the Pension Policy Center, shows that policies and mandates aimed at building sufficient retirement income are both effective and popular.
The UK program, the National Employment Savings Trust (NEST), is “a bold, new retirement savings program. This program requires all employers to automatically enrol their employees in retirement accounts. Employers are also required to contribute to the plan if an employee participates in it; however, individuals have the option to opt out. This new program is being phased in and should be fully implemented by 2018,” said Brown.
The program is being touted as a success for expanding retirement coverage to nearly six million Britons since its inception, and by the time it is fully phased in, that coverage is expected to extend to a total of nine million workers who did not previously have an occupational retirement program. A NEST 2014 survey revealed that 77 per cent of people polled thought auto enrolment a good idea.
Will Sandbrook, NEST’s director of strategy, told ARIA in an interview that the program is largely aimed at building retirement wealth for generations following the boomers.
“While there will be some challenges (for boomers), by and large that generation is entering into retirement in a very strong position. The real concern is what is going to happen to the generations after the boomers who don’t have retirement plans,” he told ARIA.
“That worry is the main motivation behind NEST … the long-term strategic view is that something had to be done to rebuild some of the private savings of people who would be retiring after the boomers.”
That thinking aligns with what is happening to boost retirement income in other countries, including Canada where the recent move to enhance Canada Pension Plan (CPP) benefits is largely aimed at Gen-Xers, millennials and subsequent generations.
Common elements of programs as varied as NEST, the expanded CPP, Quebec’s Voluntary Retirement Savings Plan (VRSP), New Zealand’s KiwiSaver, and Australia’s superannuation program, are mandated employer participation and benefit contributions – with the exception of the VRSP, which only mandates participation.
Despite “numerous policy innovations” in the United States over the past decades designed to expand retirement coverage, “pension coverage rates have not shifted and have remained around 50 percent or less for decades,” according to the NIRS report.
Reasons for this, say Brown and Turner, include low participation rates in existing options, such as workplace 401(k) plans. Pension coverage, they continue, can be expanded with “varying degrees of government intervention through incentives, nudges, and mandates,” as evidenced by the UK experience.
The mandate approach as well as the nudge principle can be seen in a number of recent American initiatives at the state level to increase retirement coverage. States, including California, have launched programs that mandate participation from employers that don’t offer a retirement program, and which nudge workers into those programs through auto enrolment.
Left to their own devices, most people won’t sign up for workplace retirement programs, even if they are part of an employment benefit package, David Laibson, a behavioural scientist and Harvard economics professor, told ARIA during an interview.
“We are pretty focused on what is happening to us right now and we are not necessarily thinking about what’s going to happen next week, year or decade,” he said. “The root cause (of not saving) is that we are naturally prone to giving priority to the present, and to thereby diminish the future.”
However, once automatically enrolled in a retirement program, research shows that workers tend to stay in them, even if they are given the option of opting out; Sandbrook told ARIA that since NEST first launched in 2012, only eight per cent of workers have opted out.
A next step in growing adequate retirement income in the United States involves “providing every employee an opportunity to save in a retirement account directly through payroll” as is happening in the UK, said Brown and Turner, adding that a positive outcome of auto enrolment is that employees begin to place a higher emphasis on saving for retirement. NEST research shows that accumulating sufficient retirement income has jumped as a priority for workers.
“When you enrol people automatically, they start to rate saving more highly in their spending priorities. It’s possible, therefore, that what enrolment is going to do is put a bit more emphasis on savings,” Sandbrook told ARIA.
Rather than a co-ordinated national approach such as NEST, retirement initiatives in the United States have been “incremental,” said Brown, adding that “without mandates, access to payroll savings programs, or mandatory employee contributions, which remain controversial in the U.S., American workers will likely lag behind workers in the U.K. when it comes to retirement security.”

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