From the blog: The idyllic view of retirees relaxing in comfortable surroundings at home or on holiday with apparently little financial worry is one often portrayed; but it is increasingly becoming an aspiration impossible to realise for the majority of people.
As more people reach retirement age and live longer, an inadequate state pension, coupled with limited retirement savings, highlight an escalating social crisis.
As more people reach retirement age and live longer, an inadequate state pension, coupled with limited retirement savings, highlight an escalating social crisis.
The typical model found across the globe for retirement income involves three sources: a basic state pension; supplemental retirement savings (either mandated or provided through company schemes); and financial savings.
Across Asia, Europe and the Americas, many countries provide a safety net for those who have not been able to amass enough in the way of retirement income from these sources. Governments are concerned at the spiralling cost of providing retirement income and healthcare to a growing number of retirees.
As there is no silver bullet to solve the world’s demographic issues, here are some of the practices that have been deployed to deliver better outcomes for individuals and the state.
Encouraging higher contributions
The use of legislation to require employees and employers to contribute towards retirement are increasingly being deployed across the globe, with contribution rates often increasing to significant levels of retirement saving. In Australia the rate ultimately increases to 12 per cent, and to 20 per cent in Thailand. Often the burden is shared between employees and the employer.
Auto-enrolling employees into retirement plans has also driven increased participation. Research in the US has shown this delivers higher participation rates of 86 per cent against 51 per cent in plans with no auto-enrolment.
Better financial education
There is an increased focus on improving financial awareness among people, driven both by governments and the private sector. For example, the UK is following Australia and Sweden by introducing the pension dashboard to improve awareness of retirement planning, and an increasing number of multinationals are developing so-called financial wellness programmes.
A competitive marketplace
While encouraging retirement savings is one element, ensuring financial products are transparent and competitive is critical. In Hong Kong, the regulator provides an analysis of performance and charges of all retirement investment options. The EU is also reviewing the efficiency of personal pension products to assess the need for policy changes.
An increasing number of countries are deploying a combination of these strategies to encourage individuals to provide for a more financially secure retirement.
Mark Sullivan is head of international benefits consulting at Fidelity Benefits Consulting
