April 2023

How America Saves 2022

By Vanguard Over the past decade, retirement plan sponsors have increasingly turned to automatic solutions to influence employee retirement saving behavior. As a result, plan participation rates have increased, automatic enrollment designs have become stronger, and participant portfolio construction has continued to improve with more age-appropriate asset mixes and less extreme equity allocations. During 2021, the COVID-19 pandemic continued to impact many parts of the economy. While it pushed to recover, the economy faced prominent headwinds that stoked several forms of...

Mandatory Pension Contributions: Effects on Household Consumption and Savings

By Linda Sandris Larsen, Ulf Nielsson, Mara Nutu & Jesper Rangvid Using rich register data from Denmark, we study whether people save enough to maintain their pre-retirement level of consumption during retirement. We find that 77% of retirees do. This high fraction is driven by mandatory labour market contributions. The 23% of individuals who do not save enough to maintain their pre-retirement level of consumption are less likely to have mandatory pension schemes and do not compensate for the lack...

Aging, Inadequacy, and Fiscal Constraint: The Case of Thailand

By Phitawat Poonpolkul, Ponpoje Porapakkarm & Nada Wasi We use an overlapping generations model to study the challenge in developing countries with a large informal sector and aging populations. We use Thailand as a case study and incorporate its labor market structure and its public pension system into the calibrated model. Unlike developed countries, workers in developing countries commonly transit from the formal sector to the informal sector, which can be in the early stage of their working life. This...

Younger workers stashing more in retirement plans, Vanguard study says

Younger workers today are participating in their workplace retirement plans at higher rates than they were 15 years ago, and they're saving more, according to new research from Vanguard. In 2021, 62% of Generation Z workers — those between the ages of 18 and 24 — participated in the retirement plans offered through their employers, up from 30% of people in that age range who did so in 2006. Their average deferrals also ticked up to 5.4% from 4.8%. Millennials too...

March 2023

The cost of living

We first took evidence on the cost of living crisis in February 2022, when inflation was forecast to peak at 7.25% in April 2022. Since then, we have seen the invasion of Ukraine compound the difficult economic picture and inflationary pressure seen internationally and domestically after the COVID-19 pandemic, and inflation now looks set to top 11% in October—the highest in 40 years. However, the context for the cost of living crisis and its impact on the poorest in...

US. Retirement Figures in DOL Budget’s SECURE 2.0 Implementation Plan

The Department of Labor (DOL) in its budget proposal for fiscal year 2024 seeks funding to implement SECURE 2.0, and that includes retirement-related priorities. The DOL seeks $4,672,000 to Implement SECURE 2.0. The DOL indicates that it has no choice but to do so. The Consolidated Appropriations Act of 2023, notes the DOL, included mandates for implementing SECURE 2.0, and that included “a wide range of retirement-focused issues.” However, they add, the Act “did not appropriate any additional resources for implementation.” SECURE...

UK. What are the implications of removing the pensions lifetime allowance?

One of the headline announcements of the budget on 15 March was the scrapping of the lifetime allowance for private pensions. The allowance – which currently stands at just over £1 million – is the maximum that an individual can draw from their pension in their lifetime without paying additional tax. Unsurprisingly, this policy, which will come into force from April 2024, has been criticised by some commentators, as it is higher earners who are likely to benefit most. How does...

Retirement preparedness during uncertain times

By Fidelity 2023 RSA Executive Summary Fidelity’s Retirement Savings Assessment is built upon comprehensive data from more than 3,500 survey responses that are run through the extensive retirement planning platform Fidelity uses every day with customers. The result: a numerical indicator showing whether savers are on track to meet estimated retirement income needs. The score places households into four categories on the preparedness spectrum, based on a household’s ability to cover estimated retirement expenses in a down market. Read book here

Americans less prepared for retirement amid financial uncertainty – Fidelity

Americans are less prepared for retirement than they were during the start of the COVID-19 pandemic, according to Fidelity Investment's 2023 retirement saving assessment study. According to the study, which was released Tuesday and examined the responses of 3,569 retirement savers that are run through Fidelity's retirement planning platform, the typical American saver is on target to have only 78% of the income needed to cover expenses during retirement. That is down from 83% at the beginning of 2020, when...

Pension Tax Limits

By Gov.UK Individual members of registered pension schemes who make annual pension contributions over the standard annual allowance (AA), money purchase annual allowance (MPAA), or tapered annual allowance (tapered AA), and who therefore expect to become subject to an AA charge. Individual members of registered pension schemes who already have or expect to have pension savings exceeding either the standard lifetime allowance (LTA) or their protected LTA, and who therefore expect to become subject to an LTA charge. Scheme administrators of registered pension schemes who will need to...