Systems for retirement provision globally are too cumbersome and outdated to achieve their objective, and in some cases their goal is not even clear, according to a pensions specialist.
Setting up a single entity to drive a collective approach to solving the problem would help, suggests Josef Pilger, Sydney-based global pensions and retirement leader at consulting firm EY.
The retirement time-bomb is ticking and not enough progress is being made to solve the problem, noted Pilger, who recently co-authored a study seeking to inspire practitioners to scale up the industry over the next 10 years.
Last month's EY report was based on a global survey of 200 respondents including policymakers, regulators, pension plan trustees and industry executives, asking them to assess their respective distribution systems. Their positive self-assessments revealed a high level of complacency across the board, while the reality is that pensions is probably "the most difficult industry in the world to deal with”, Pilger told AsianInvestor.
There is less than $100 trillion in pension assets globally, yet the report suggests the pool needs to approach $500 trillion over the next decade – "a daunting yet essential goal".
But is it in any way realistic? Even taking into account China’s likely growth, Pilger said the figure may only swell by $100 trillion in that time. “The industry has never been challenged to realise the size of the pensions prize. But if we want to make the $500 trilllion pension industry a reality, we have to approach the question of making the whole thing simpler."
To coordinate this, Pilger proposes the set-up of a single supranational entity to drive a collective approach to solving pensions issues. “What we have now, even in the more sophisticated markets, is only a partial solution. Even in Australia, we don’t have a clear strategy.”
The pension professionals surveyed by EY believe they have articulated a long-term strategy. Yet the firm found that public confidence in retirement systems is still, broadly speaking, limited at best.
“Not enough attention has been paid to addressing what it is we are trying to solve,” said Pilger. “Is the aim to provide a poverty net or a comfortable lifestyle in retirement? If it’s the latter, then [even] $500 trillion will not be enough.”
The ageing of Asia will be one of the major social problems for the region in the next 10 years, and the recent ending of China’s one-child policy is partly an acknowledgement of that.
Engaging governments, employers, members and the industry in a coordinated programme, is a good starting point said Pilger.
"Members are not as disengaged as we might think," he noted. "They are just not being addressed in the right way. We are still stuck in this paternalistic view of the customer." He was making the point that solutions are handed down without much thought to what the client actually needs.
On a positive note, Pilger said countries at the forefront of pensions thinking were embracing the need to fill this 'empowerment gap'. He pointed to economies such as the Netherlands, which has developed the concept of 'defined ambition' pensions, where employers and employees share the pension risk.
The converging solutions for pensions, retirement and wealth management in several countries are excellent starting points to understand how to empower informed decisions, he noted.
Making member participation obligatory, as well as pre-selecting specific choices via default options, still play a pivotal role. But opt-out and auto-enrolment are only parts of the solution, as they work on the same premise they try to overcome: inertia, not informed decisions.
“Culture, customer-centricity and distribution capabilities must also adapt to the new world,” said Pilger. Digital services can help, and robo-advice can evolve by suggesting solutions, he added.