Retirement
Mandatory Employer Pensions in Ireland, Germany, and the United Kingdom
Research Report
Sophie Korczyk, Ph.D
January 2007
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In 2005, the personal saving rate in the United States declined into negative territory for the entire year, and it continued negative through the first three quarters of 2006. Policymakers in early 2007 are debating whether pension coverage gaps should be filled by making some version of 401(k)-type plans mandatory for all workers.
Germany, Ireland, and the United Kingdom have enacted within the past five years 401(k)-type pensions that are mandatory on employers. These plans may offer lessons for the U.S. as it attempts to increase pension coverage and retirement saving. This AARP Public Policy Institute Issue Paper describes these three countries’ experiences in the operation of their new mandatory plans and how their features compare with those of 401(k) plans in the U.S.
Their experiences suggest that employer pension mandates may not expand private pension coverage or generate new savings in the near term. But the United States may have advantages over these countries in making such plans work because the 401(k) plan is part of the popular American vernacular. Many employees who are currently without coverage may have participated in a 401(k) plan in a prior job or have a spouse, other family member or friend who has done so. Employees covered by a mandate are thus likely to be familiar with the basic concept. (30 pages)
Pub ID: 2007-03