Pension Shortfalls Could Trigger Another Global Financial Crisis: EY

By Mani
Updated on

Yet another research report highlights structural problems with the global retirement system. All system stakeholders must acknowledge the financial burden left behind for the younger generation and systematically rebalance affordable benefits and expectations of pension and retirement systems, notes a study by EY.

In a report titled “Building a better retirement world”, EY points out that the global financial crisis (GFC) acted as a catalyst for various stakeholders including governments, public and private sector employers to focus on the long-evolving financial challenges in retirement.

Pension and retirement shortfall: Demographic earthquake

According to the EY report, many systems in developed markets face severe strain thanks to expectations mismatch. The report points out that there is a mismatch between increasing longevity and expectations of generous retirement benefits versus dwindling financial resources to safely meet those expectations.

The report highlights that following the GFC, deficits in public and private sector pension funding have increased dramatically, and the ability of the entities to meet those deficits has substantially diminished. Hence, there is a strong need to initiate a long-term vision, tough decisions and political discipline. The following graph sets forth the OECD pension gaps in selected countries:


The report envisages a tough transformation process for governments, public and private sector employers and providers that has not yet started. Interestingly, the EY report notes most countries have little time to avoid a demographic earthquake.

Enhanced supervision, regulation of pension and retirement systems

The EY report notes that the increasing importance of pension and retirement systems requires enhancing quality of regulation, supervision, governance and transparency to align to higher expectations. The following chart captures the importance of each of the five tenets in the current pension debate in the 18 countries analyzed by the EY team.

Pension And Retirement Shortfall Heatmap

The report suggests that the policy makers should identify the most relevant countries and learn from their experiences, though there is no single response to appropriate policy reform as systems operate in different socio-economic and political contexts and levels of maturity.

Plethora of opportunities

The EY report notes short-to medium-term business opportunities exist in the pension and retirement markets across all markets. The following picture depicts seven types of business opportunities across four types of pension and retirement markets:

Pension And Retirement Shortfall Business opportunities

The EY report concludes that the pension providers need an integrated approach and operating model that will facilitate maximizing long-term benefits and contribute towards global industrialization of the pension industry.

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