New Zealand Society of Actuaries Conference

Retirement Provision in the UK A Curate’s Egg

Tom RossPresident of the Faculty of Actuaries

WORKING-AGE POPULATION - W. EUROPE Latest UN projections of 15 - 59 age group

0

10000

20000

30000

40000

50000

60000

in '000s

2000

2050

Number aged 65 and over as a percentage of those aged 20-64

UK

20

25

30

35

40

45

1995 2000 2005 2010 2015 2020 2025 2030

GermanyUK

Source: Eurostat

PARTICIPATION IN LATE MIDDLE AGE

0

10

20

30

40

50

60

70

80

90

%

Participation ratio, men, 55 - 64, in 1999

UK State Pensions

Basic PensionSERPS/State Second Pension

Rights

Paid from 65 (men) and 60, rising to 65 (women)

Minimum Income GuaranteePensions CreditHousing Benefit

Means Tested

Private Pensions

• Occupational Schemes

• Personal Pensions

• Stakeholder Pensions

The Issues

• State Pensions are inadequate but affordable, and fiendishly complex.

• Savings disincentives.

• Defined benefit schemes are under financial pressure and are being cut back.

• Lack of trust in personal pensions providers.

• Stakeholder is not taking off.

The Transition from DB to DC

• Where are the risks?

• Financial projections.

• Actuaries should be doing more analysis and should be more innovative.

• There is a discontinuance time bomb within many DB schemes.

What’s Being Done?

• Not enough!

• Sandler Review - simpler more transparent products.

• Pickering Review - simplifying occupational scheme regulatory framework.

• Inland Revenue Tax Simplification Review - don’t know yet but rumours abound.

• Government Green Paper - ditto

What needs to be addressed?

• The State’s role - universal provider or means tested gap-filler?

• Extending working lives.

• Raising State pension age.

• Radical simplification.

• Decent tax incentives, without being too generous to the rich.

• Consumer education and awareness.