The UK’s pension system is flawed, with the government’s uprating of the state pension by at least 2.5% a “bizarre policy” unseen in any other country, according to the OECD.
However, Mark Pearson, the think tank’s deputy director of employment, labour and social affairs, said flaws to the UK’s system would remain manageable “for quite some time”, as long as the country were able to raise private pension saving rates to the level seen in New Zealand.
Launching the OECD’s sixth edition of the ‘Pensions at a Glance’ report, Pearson noted approximately half of the 34 states covered implemented reforms of their pension systems over the two years to 2015.
He said that, while the reforms mostly put pension systems on a more sustainable path, they were often only a step in the right direction.
Pearson qualified findings for the UK, noting they were “completely and utterly illusory”, as the affordability and sustainability of the state pension system was based on continued economic growth, while adequate retirement income was reliant on the uptake of voluntary pension saving and the success of auto-enrolment.
During his presentation, Pearson repeatedly referenced the level of private pension saving seen in New Zealand as a desirable level for the UK to achieve.
“The key thing [for the UK] is whether we get people to take up the private pension,” he said. “If that happens, then the system [will] remain flawed, but it will be flawed in ways that will be manageable for quite some time.
“If we can actually get the take-up somewhere near to New Zealand levels, I would consider that a success.”
According to the OECD’s report, as of June 2014 – seven years after the introduction of the KiwiSaver reforms – 67% of the working age population saved into a private pension scheme.
To date, the OECD has been unable to evaluate the full impact of the UK’s auto-enrolment policy.
The policy, which came into force in 2012 but will only capture the smallest employers in 2017, has to date seen 10% of those affected opt out, according to the Department for Work & Pensions (DWP).
Pearson reserved his harshest criticism for the UK’s so-called triple lock, whereby the state pension is uprated in line with either earnings, inflation or 2.5%, whichever is higher.
He said the triple lock was “the real problem” facing the UK and the pension system’s sustainability.
Citing calls by the UK’s Institute for Fiscal Studies to see an end to the triple lock, Pearson said he “absolutely and completely [agreed]” with the call for the policy to end.
“The triple lock is the most bizarre policy we’ve seen in pensions for a long time,” he said.
“There is no other country in the OECD that has anything like a triple-lock guarantee.”
The policy, introduced by former pensions minister Steve Webb during the last parliament, has received only qualified support from the current majority Conservative party government, which has so far pledged to keep it in place until the end of its current term in 2020.