BlackRock CEO Larry Fink believes the United States government needs to do more to encourage Americans to save, including creating a mandatory savings program in addition to social security.
Speaking at the New York University Stern School of Business this week, he suggested that the U.S. needs a comprehensive solution similar to Australia’s superannuation system or the California Public Employees’ Retirement System (CalPERS).
Australia’s superannuation program was launched 20 years ago, and employers must contribute a portion of income into an account for every part-time and full-time employee.
Contributions were 3% of income at the beginning and have gradually risen to 9%. They’ll go up to 12% by 2020, and individuals can make additional contributions on top of the minimum amount.
“Superannuation has been a huge success in supplementing the government pension scheme and taking the strain off it—an attractive prospect as we think about how to relieve the burden on social security in this country,” Fink said. “All told, in just 20 years, more than US$1.6 trillion in assets are held in these accounts—giving Australians one of the highest per capita retirement savings pools in the world.”
He added that the federal government could do something similar to CalPERS on a national scale by opening the thrift savings program for federal employees to all workers.
“But the point is, the current system is broken, and we need a comprehensive approach that includes some form of mandatory savings in addition to social security,” Fink says.
He also believes that employers and the asset management industry need to do a better job. “Shifting from DB plans to DC plans does not absolve employers from the moral obligation to help employees prepare for retirement.”
Fink believes that more employers should offer retirement savings plans, auto-enrol all employees, provide matching funds and educate employees on the absolute necessity of maxing out their plans.
He also thinks the asset management industry, including his own company, has to help investors achieve their objectives.
“That means less of a focus on short-term sales and products—and more on investors’ long-term needs,” Fink explains. “Investors want products that will provide long-term outcomes to help buy a house, send a kid to college or fund a decent retirement.”