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DC Pensions in the US and the UK: Lessons from across the pond

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    Eversheds Sutherland looks at the transatlantic differences between DC Pensions in the US and the UK

    Eversheds Sutherland has published a paper – ‘DC Pensions in the US and the UK: Lessons from across the pond’ – addressing the differences between defined contributions (DC) pensions in the US and the UK and the lessons that can be learned from these.

    The paper is a high-level overview of the legal, regulatory and policy framework governing DC pensions in both jurisdictions. It provides analysis of the shift away from defined benefit (DB) plans in the US and the UK, to the widespread use by both countries of DC plans as the primary form of workplace pension provision – a trend which began in the US and then moved across the pond to the UK.

    Authored by Eversheds Sutherland’s Head of Pensions, London-based Francois Barker and US-based Partner Adam Cohen, the paper highlights several lessons that UK employers and policymakers can learn from their US counterparts, including:

    • the potential for auto-escalation, which has been used successfully in the US to boost the contributions paid by DC plan members, to help address the problem of undersaving in the UK (where average contribution rates to workplace pension plans have fallen from 9.7% in 2012 (prior to the introduction of auto-enrolment) to 4.2% in 2016); and 
    • the scope for greater flexibility, such as early access by way of plan loans which is commonplace under US DC plans, to help attract and retain the new generation of savers for whom pension saving competes with other financial demands such as repaying student debt and getting on the housing ladder.

    Notably, the paper also highlights the risk of a recent trend – an increase in litigation by US plan members over excessive investment fees under DC plans – potentially crossing the Atlantic. UK providers, trustees and employers need to be alive to this risk, particularly in light of the new legal duties for DC plans to ensure they are delivering value for money.

    By comparing the approach both countries take to DC pensions, this paper arms employers and policymakers with a much more informed view of the best practice approach taken by their transatlantic cousins.

    Francois Barker, commented:

    “DC pensions are the future for millions of savers in the UK. The US ‘went DC’ a long time before the UK, and our report highlights several areas – like auto-escalation - where UK employers and policymakers could usefully learn from the US experience to improve DC provision. Equally, there is no monopoly on wisdom and there are also areas – like mandatory auto-enrolment and re-enrolment - where learning could go the other way.” 

    Adam Cohen, commented:

    “As defined contribution plans have become central to retirement planning, employers on both sides of the Atlantic are looking for new ways to boost participation and ensure adequacy of funds for retirement. Our report identifies areas of similarity and differences between the US and the UK in the DC plan space with the hope that each country can learn from the successes and challenges of the other.”


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