If the income from state and occupational pensions decreases in the future, how would you expect savers to respond?
Forward-looking people should save more privately to maintain their consumption level in old age. However, we found that Europeans don’t fully replace the losses they have to expect in first- and second-pillar benefits. They only save 40 to 60 cents for every euro not paid out.
How can people be motivated to save more?
Consumer-protection measures and financial education are a good thing, although how to boost financial literacy effectively is debated among experts. Mandatory elements such as automatic increases of contributions seem to be more fruitful.
People are already struggling to make ends meet, so how can they afford to save?
Well, the flip side of saving is labor-market behavior. Many Europeans are likely to work longer and retire later, either due to a lack of private funds or because retirement entry age is raised, as for example in the Netherlands.
Previous research in this area often suffered from the lack of reliable data. How did you avoid this problem?
Our results are based on real people’s life histories. We used retrospective data from older workers and retirees in 13 European countries. This included participants’ job histories, wages, expected replacement rate, actual health conditions, relationships and housing.
If risk premiums are a thing of the past, how can pension funds and asset managers generate enough return for reliable pension income?
First of all, solvency requirements for pension funds have to be amended, as decreasing interest rates often increase liabilities and thus create greater uncertainty among savers. Interest rates with a floating average might be a solution. But, quite frankly, I am not a fund manager.