Earlier this year, financial services and investment advisory firm EY undertook a survey to identify key challenges and opportunities in global pension and retirement markets. EY conducted over 80 interviews with pension and retirement professionals in 18 countries worldwide. The findings of the study are designed to assist policymakers and support pension and retirement industry managers to make informed decisions regarding investments and global business opportunities.
EY organized the findings of their survey into seven key areas identified by global pension and retirement professionals.
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Seven steps to better retirement outcomes
1. Rebalance benefit expectations with financial resources
The EY report notes that nearly all respondents agreed that “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.” This means retirement and pension providers and policymakers must take a long-term perspective and try to create the political will to drive the necessary pension and retirement reform, including benefit reductions and “outsourcing” outcome responsibility.
Another issue of concern to retirement professionals is assets in many emerging market pension and retirement systems are growing far faster than local capital markets are developing, which creates cyclical volatility and creates problems with operational risk, regulatory oversight, liquidity and infrastructure for national regulators.
Local markets will need to evolve and expand to maximize and smooth out pension outcomes. EY notes: “This will require diverse experience and capabilities in the assessment, decision and implementation aspects of retirement and pension reform.”
Respondents also highlighted that the sheer size of pension markets and their risk to social and economic stability in the post-crisis world absolutely mandate greater political and public scrutiny, regulation and transparency. This also means, however, that retirement providers “must ensure their solutions align across multiple jurisdictions and regulations while still supporting sustainable delivery of better retirement outcomes.”
The EY report also pointed out that a holistic approach toward operational excellence that includes cost analysis, service delivery and risk management is a requirement for real reform. Becoming operationally lean is a crucial part of the maturation of the industry.
The new rules of the post-financial crisis capital markets are forcing retirement and pension providers to rethink their investment strategies, asset allocation policies and operating models.
EY says that future retirement solutions need to “align with the increasing size of pension and retirement assets. Robust systems and predictable outcomes are crucial to restoring public confidence in these solutions.”
Pension and retirement systems are overly complicated in nearly all countries. This unnecessary complexity reduces participant confidence and engagement. EY notes that very few pension systems are making a real effort to simply their procedures. Significant reforms in communication, product selection and operations could result in greater customer confidence, buy-in and engagement.
Policymakers are trying to encourage people to save more for retirement, but providers must understand their customers’ behaviors and needs to make this happen.
Respondents to the EY survey suggested that social media and other digital solutions are important tools to create more effective interactions with stakeholders. This means that retirement plan providers now have an opportunity similar to that the banking industry had a decade ago when it started empowering customers by giving them access to information.