Mercer sets out roadmap to close pension gap for future generations
London 28 August 2024 — Mercer, a business of Marsh McLennan (NYSE: MMC) and a global leader in helping clients realise their investment objectives, shape the future of work and enhance health and retirement outcomes for their people, today published its Road Map for Pensions and Long-term Savings at an event in London.
The report highlights three main challenges facing the sector, which are low standards of living for retirees, low productivity of long-term savings and the need to increase saver engagement. It proposes speeding up the expansion of auto-enrolment and increasing minimum statutory contribution levels to improve standards of living in retirement and support UK economic growth. The roadmap calls on the pensions industry to explore the use of innovations in AI and for the government’s pensions review to evaluate the current state pension, including the Triple Lock measure.
Mercer also highlights that the UK’s pensions system is fragmented, with numerous schemes and providers, which leads to inefficiencies. To address the current low productivity of savings, Mercer would like to see continued support for consolidation, to improve cost-efficiency and productivity of savings, strengthen governance standards and contribute to better outcomes for members. This could be driven by speeding up the implementation of a consistent Value for Money assessment framework for DC schemes, changes to how the Master Trust market operates and measures to ensure that a wide range of options for DB schemes can be supported.
Phil Parkinson, Mercer’s UK Head of Wealth, said, “We are slowly walking towards a cliff edge of challenges for pensions and long-term savings, but we have an opportunity to address these. In the UK, people are not saving enough to have a comfortable retirement, and the state pension will not provide the standard of living people expect. The cost of inaction now is likely to be borne by future generations. We are encouraged by the steps taken by the new government and welcome the pensions review. We now need to move quickly.
“To ensure people have a comfortable retirement, we encourage the Government to expand auto-enrolment, address the fragmented pensions system, and support productive asset investment.”
The problem is stark in the UK. According to the most recent Mercer CFA Global Pensions Index, the UK will fall short in providing the desired retirement incomes for many and ranks 13th out of 47 countries. The report makes clear that there is room for improvement, despite the UK holding the largest pension and long-term savings system in Europe, with pension fund assets nearing £2 trillion. Around 17 million adults aren’t saving enough for retirement and will face an income gap. As it stands, the current UK state pension only provides 77% of a single person’s needs.
Data from the World Economic Forum (WEF) shows the UK’s pension gap will rise from £6 trillion to £25 trillion by 2050. There is also a gender savings gap and generational inequalities. Only 3% of millennial households with median income are projected to meet a "moderate" standard of living in retirement.
Ends
About Mercer
Mercer, a business of Marsh McLennan (NYSE: MMC), is a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people. Marsh McLennan is a global leader in risk, strategy and people, advising clients in 130 countries across four businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. With annual revenue of $23 billion and more than 85,000 colleagues, Marsh McLennan helps build the confidence to thrive through the power of perspective. For more information, visit mercer.com, or follow on LinkedIn and X.