The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.
Individual defined contribution (DC) accounts are storing up problems for generations to come, they said, but the UK "still has time" to reform retirement savings and make future retirees less dependent on the state.
To do this, the UK must introduce collective forms of saving, with investment and longevity risk shared, such as collective defined contribution (CDC), and provide more financial education and support to future retirees.
It comes as the government is expected to launch a consultation on introducing CDC schemes towards the end of the year, after Royal Mail agreed in principle to launch such savings provision for its workers when possible.
Prudential Financial senior vice president and head of longevity risk transfer Amy Kessler pointed to the UK's net income replacement ratio, which is the lowest of all countries in the Organisation for Economic Co-operation and Development (OECD).
On average, male UK retirees have an income of just 29% compared to pre-retirement salaries. In contrast, the Dutch system, which uses CDC, provides a ratio of more than 100%.
Speaking on 20 September at the Longevity 14 conference in Amsterdam, Kessler said: "This is one of the biggest challenges of our time… [but] we still have time to put people on a pathway where they will be able to save for that future date when the demographic challenge will make it impossible for society to help them.
"We have to start now to allow people the time to save, invest, and earn on their investments to arrive at that future retirement date with adequate resources to be more independent."
Across Europe, on average, three working people financially support each retiree; by 2050, this is predicted to fall to fewer than two, posing a "dramatic change" and a risk for public finances. "Every day we wait, the worse it gets," Kessler added.
Pensions Institute director, Professor David Blake, who organised and chaired the conference, agreed, arguing cracks had long been showing in state systems.
"On the state side, social security systems are insolvent," he said. "In the UK, if you took the value of all the promises made to pensioners, national debt is five times GDP. In the US, it is 12 times. If those were companies, they would be insolvent.
"Over the rest of this century, demographic factors will dominate. It is the new era of ‘it's the demographics, stupid.'"
Meanwhile, CDC in The Netherlands produces "strong results" with the "best income replacement rate in the world, discipline, saving and investing, world-class asset management, and bulk sharing of risk."
Yet, The Netherlands is considering moving towards an individual system in response to savers' concerns about intergenerational fairness, something which Kessler said was "ironic".
The possibility of CDC in the UK has proven divisive. While Centre for Policy Studies research fellow Michael Johnson has said the provision could risk creating "irreversible intergenerational injustice", the Work and Pensions Committee said it could be "the next great pensions revolution".
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