The pensions paradox: why weak investment, not an ageing population, is driving pensions policy

Automatic enrolment is gathering pace. Between 2012 and 2017 millions of employees will be enrolled into a workplace pension scheme, many of them for the first time. We are frequently told that this is to address the UK’s chronic under-saving crisis, exacerbated by population ageing. But this is, at most, only part of the story. Does the UK have an under-saving problem? Arguably. Does the UK have an ageing population? Certainly. Are these the main reasons we are now being ‘nudged’ (in practice, shoved) into pensions saving? Probably not.

Instead, recent pensions policy developments have as much to do with the UK’s staggeringly poor record on investment. The idea of automatic enrolment germinated in the boom years, but the reason it has been taken forward so vociferously by the coalition government – despite the fact it represents a huge increase on pensions tax relief expenditure – is to compensate for the government’s failure to rebalance the economy away from consumption and towards investment.

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Image: Samir Cabbarov