UK should be “more forceful” over pension saving
UK – The UK’s traditional voluntary approach to pension savings has come under scrutiny from the IMF, which says the UK may need to consider “more forceful” methods.
The International Monetary Fund said risks to the UK’s long-term public spending on pensions would be “substantially mitigated if the government considers other, more forceful, options to increasing private pension savings”.
A spokesman for the Department for Work and Pensions said the UK remains “absolutely” committed to the voluntary model – although he said compulsion was on the agenda of the new Pension Commission.
The IMF acknowledged that the UK’s voluntary strategy of increasing private pension saving and extending working lives was the “first-best solution” to population ageing. A more forceful approach would be a ‘second-best’ solution.
“However, many of its initiatives are new and untested. At this point, it is too early to tell of they will achieve a tangible increase in private pension saving,” the IMF said in a ‘selected issues’ paper on the UK.
“Nonetheless, the outlook for the government’s spending on pensions depends critically on the desired increase in private pension and other income.
“If this outcome is not attained, the UK public pension system could be exposed to contingent liabilities of up to 2.5% of gross domestic product in 2050.”
The IMF voiced concern over the possible impact of the planned protection for occupational pensions, saying that “the increased protection of existing pensions could jeopardise the emergence of new schemes”. The DWP said it hoped its measures would boost confidence in existing schemes.