Pension and retirement systems need to reformed rapidily at a global level to meet demographic challenges, according to a report from EY.
For the report, the firm conducted more than 80 interviews with pension- and retirement-related professionals, including policy-makers, government regulators, public and private sector plans, and product providers representing 18 countries across the Americas, Asia-Pacific and Europe.
While policy reform is never easy, survey participants agree that change is needed to rebalance pension and retirement systems.
They identified these five key components that will lead a more robust pensions and retirement system across the globe: financial adequacy, financial sustainability, performance, efficiency and effectiveness, and political aspects.
EY has identified seven key areas that present opportunities for pension and retirement providers to help deliver social policy around pensions.
- Rebalance benefit expectations with financial resources — Expectations of generous retirement and pension benefits that don’t match financial reality, coupled with increasing customer longevity, are increasing retirement and pension fund deficits.
- Support concurrent evolution of local financial markets — Assets in many emerging market pension and retirement systems are increasing at a far greater rate than local capital markets are developing, which strains national financial systems in terms of operational risk, regulatory oversight, liquidity and infrastructure.
- Accept a new level of regulation, oversight and transparency — The size of pension markets and their inherent risk to social and economic stability in the post-crisis world require higher levels of political and public scrutiny, regulation and transparency.
- Increase focus on operational excellence — A holistic approach toward operational excellence (encompassing cost analysis, service delivery and risk management) is needed to drive meaningful reform and help industrialize the retirement and pension sector.
- Recalibrate investment functions and investment management — The post-crisis capital market is forcing retirement and pension providers to re-evaluate their investment strategies, asset allocation policies and operating models.
- Find simplicity in complex systems — In most markets, pension and retirement systems are overly complicated. For beneficiaries, this complexity reduces confidence and engagement.
- Connect and become customer-centric — Policy-makers aspire to increase voluntary retirement savings, but this is possible only when providers understand their customers’ behaviour and needs. Social media and other digital solutions are vital tools to building effective interaction with stakeholders.
“The pension and retirement industry is becoming more global at an exceptional speed, especially on the policy and delivery front, which is impacting our government, public and private sector clients,” says Graeme McKenzie, EY’s global pension leader. “Discipline, reasoning and hard decisions will be necessary to make the retirement world better, fairer and sustainable over the long term to address the financial impact of a global demographic transformation.”
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