Adequacy is the new buzzword, but what are we actually talking about? How do you define adequate pensions?
It’s a really complex concept, particularly across countries. In the United Kingdom, state pensions provide 45% of average earnings, yet one person’s adequacy may be another’s inadequacy.
If adequacy is more than just poverty protection, how can it be assessed?
That depends on how much people can afford to save. Workers with low earnings will likely need a 100% replacement rate, while the rate for wealthier workers can be lower. Defining the baseline through a state pension will make it easier for people to establish their needs.
The European Commission strives for adequacy. What’s your response?
Clearly, we support that. However, our concern is that the Commission’s approach, particularly with regard to Solvency II-style rules for pensions, may incur high costs for employers as well as employees, and may even effect the closure of pension schemes.
As we humans are inert and fundamentally short term, how can we make retirement saving relevant for tomorrow’s retirees?
I point to auto-enrollment. Money diverted from your paycheck into a pension scheme you are unlikely to miss. Retirement saving needs to be as automatic as paying your mobile phone bill. To help achieve that, the industry has to speak in clearer, less technical language.
How long do you expect this transformation to take?
Frankly, I don’t know. But that shouldn’t keep us from educating today’s 20-year olds.
When you consider female careers, with breaks for childrearing and so on, what is your recommendation?
While it’s easier said than done, women have to change their mindset to strive for financial independency not only at working age, but also in retirement. Regardless of gender, my advice is: if you have the opportunity to join a pension scheme, then join it.