UK pension savers should not be given the option to opt-out of auto-enrolment plans and should instead copy Australia's extremely effective retirement system, the chief executive of consultants BlackRock has suggested.
Speaking at the National Association of Pension Funds Investment Conference in Edinburgh yesterday, Larry Fink said a compulsory pension saving programme, similar to the Australian superannuation scheme, would help solve the UK's pension's crisis.
Superannuation, introduced in 1992, is a government-supported pension arrangement where the Australian workers make minimum compulsory payments into a fund by an employee.
'As I have advocated in the US, I would recommend simply making an appropriate level retirement saving mandatory here in the UK, without the opportunity to opt-out,' said Fink.
'This has been done with the superannuation system in Australia and has proven to be extremely effective. There is too much risk that people will either opt-out, or not put enough away even if they remain in a plan.'
He said more needed to be done to ensure people were prepared financially for retirement, noting that Britons are being challenged by rising pensions costs, insufficient savings and insufficient pension fund investment returns.
Reflecting on the UK's annuities market, Fink said the cost of retirement income had doubled over the past 40 years, according to BlackRock figures. He said in 1971, each £1 of retirement income cost about £6 of savings for a 70-year old male. Today, the figure has ballooned to nearly £12, with half the increase due to lower interest rates and half resulting from increased life expectancy, he revealed.
Citing research by the Policy Exchange think-tank, Fink said the average UK worker has a pension pot of just £36,800, which would likely yield an income of only £1,340. He highlighted the need for education around pensions and the effects of longevity.
'The shift from defined benefit to defined contribution retirement savings has presented a huge challenge to individual savers here as elsewhere in the world. We need people to save more and save earlier.'
During his speech, Fink also touched upon the pension schemes' investment dilemma. He noted that around 4,100 pension plans remained in deficit relative to their liabilities, with a £140bn total shortfall, as outlined by the Pension Protection Fund.
Schemes were heavily invested in traditional assets like equities and bonds and exposed to major risks, he said and stressed the need to invest beyond traditional methods.
