The U.K. is heading towards a youth unemployment crisis because people aren’t saving enough to retire.
That’s the warning from Euan MacLaren, the London-based head of Natixis Global Asset Management’s institutional business in the U.K. and Ireland, who has been discussing potential pension reforms with government officials.
MacLaren met with officials at the U.K. Department for Work & Pensions prior to the beginning of purdah – a closed period when British civil servants cannot hold such meetings prior to a general election. The government officials have been meeting with asset management firms as part of an evaluation of what age people should be automatically enrolled in retirement savings plans.
“There is a growing understanding that if a 70-year old doesn’t move on and retire, then a company may not feel able to hire the 16-year old trainee that they would usually hire,” MacLaren said in an interview. “You will get social unrest from youth unemployment and then you have a major social issue on your hands.”
The U.K. Department for Work & Pensions declined to comment on its review of auto-enrollment due to purdah.
Britain began requiring its largest employers to automatically enroll employees in retirement savings plans in 2012. The obligation, which started with employers with more than 250 staff, has been gradually rolled out to increasingly smaller U.K. firms. The government aims for 11 million people to be auto-enrolled by 2018.
Francois Barker, the head of Eversheds Sutherland’s pensions group, agreed with MacLaren’s view that Britons’ retirement delay is creating a lack of job openings for youngsters, saying the issue doesn’t get much attention because it’s a “decades away” issue for politicians.
“If you have octogenarians that can’t afford to retire, they are going to be a drain on the state,” Barker said. “If you have got lots of senior people still in work, who are not moving on, then that is going to inhibit an employer’s ability to recruit at the bottom.”
Natixis has begun analyzing the mix of funds that are offered by default in U.K. company pension schemes to assess their appropriateness. The asset management firm is hoping to publish its findings at the end of the summer, using some of the information for its own sales process.
Companies are supplying defined contribution retirement plans that are “fit-for-purpose, but not optimum,” said MacLaren. “In many cases, a lot of the default funds are not the best they could be.”
He said that a lot of people will be nearing retirement and “realizing they don’t have as much to retire on as they thought they would.”
Insurance firm Aegon said this month that it found that one in seven people in the U.K. aged 55-65 are approaching retirement without any pension.
“There is a portion of the population who either feel unable to or are unwilling to save for retirement,” Kate Smith, head of pensions at Aegon, said in a company statement about its findings in the U.K. “Others may consciously opt out of a workplace pension perhaps for affordability reasons.”
