On the flip side of pension reforms

Pension reform is inevitable, but its direction is a question of perspective

Current pension schemes and social security systems are creaking and groaning under the burden of more and more retirees demanding their due pension payments. Decreasing fertility rates add to the pressure, leaving little doubt that the pension landscape needs to change, in some cases urgently, to accommodate aging and aged societies. Yet more often than not, the direction of pension reform is a question of perspective.

Governments, for one, need to strengthen their finances for the next, longer-lived generation. Their objective must be to pay out as little as possible to maintain fiscal sustainability, while spending enough for retirees to float above the national poverty line and maintain a reasonable standard of living. However, with experts struggling to agree on when enough is enough, this is easier said than done.

Plan sponsors find themselves in a similar situation. Their key interest must be to maintain a profitable business while making the liabilities of their occupational pension scheme predictable – if they choose to offer one. Consequently, employers are keen to shed investment, inflation and other risks associated with retirement saving. While this is understandable – a carmaker should be more concerned with making cars than making pensions – the flip side is: Who will assume the risk?

As workers are ill prepared to bear all the risks of pension provisioning, one concern is that the weakest go to the wall. However, reality is hardly black and white, as the array of pension schemes ranging from defined benefit to defined contribution shows.

This is to name but a few of the challenges that abound in the realm of saving and investing for retirement. Aside from capital-market distortions such as low yields and increasing volatility, issues of labor force participation, time spent in retirement or coverage for informal-sector workers need to be considered on a country-by-country basis.

Change is sweeping across the global pension landscape, and this PROJECT M special edition – together with its web-based and interactive companion Global Pension Atlas – aims to provide a comprehensive overview of current reform efforts and remaining challenges. Ideally, it also provides a sense of direction in a rapidly changing world.

Yours sincerely,

Brigitte Miksa, January

On the flip side of pension reforms

Pension reform is inevitable, but its direction is a question of perspective

On the flip side of pension reforms

Pension reform is inevitable, but its direction is a question of perspective

Pension Atlas

Wake-up call: how to manage demographic change

Pension reforms in aging Asia

Pension savings under pressure