EY Improving retirement outcomes

Improving retirement outcomes

Global pensions report

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Although the financial aspects of aging and longevity have been debated for decades, the global financial crisis significantly altered the discussion. Policymakers, plan providers and retirees alike face new challenges in the post-crisis world.

The challenges provide an opening to reshape retirement policy and pension regulations. They also offer substantial business opportunities and a chance to spur innovation. Our seven findings below address these issues—all with an eye toward building a better retirement world.

1. Rebalance benefit expectations with financial resources

Expectations of generous retirement and pension benefits that don’t match financial reality, coupled with increasing customer longevity, are increasing retirement and pension fund deficits.

Providers and policymakers must use long-term vision and political discipline to drive tough but necessary pension and retirement reform, such as benefit reductions and “outsourcing” outcome responsibility.

2. Support concurrent evolution of local financial markets

Assets in many emerging market pension and retirement systems are increasing at a far greater rate than local capital markets are developing, which strains national financial systems in terms of operational risk, regulatory oversight, liquidity and infrastructure.

To maximize and balance pension outcomes, many levers in local markets will need to evolve and expand. This will require diverse experience and capabilities in the assessment, decision and implementation aspects of retirement and pension reform.

3. Accept a new level of regulation, oversight and transparency

The size of pension markets and their inherent risk to social and economic stability in the post-crisis world require higher levels of political and public scrutiny, regulation and transparency.

This comes with a cost. Providers must ensure their retirement solutions align across multiple jurisdictions and regulations while still supporting sustainable delivery of better retirement outcomes.

4. Increase focus on operational excellence

A holistic approach toward operational excellence (encompassing cost analysis, service delivery and risk management) is needed to drive meaningful reform and help industrialize the retirement and pension sector.

Industrialization has successfully transformed other mass-transaction markets, such as banking and securities processing, and the retirement and pension industry has an opportunity to leverage the experience and infrastructure of those markets.

5. Recalibrate investment functions and investment management

The post-crisis capital market is forcing retirement and pension providers to reevaluate their investment strategies, asset allocation policies and operating models.

Future retirement solutions need to align with the increasing size of pension and retirement assets. Robust systems and predictable outcomes are crucial to restoring public confidence in these solutions.

6. Find simplicity in complex systems

In most markets, pension and retirement systems are overly complicated. For beneficiaries, this complexity reduces confidence and engagement.

Few pension systems actively manage this dimension. Simplifying communication, product selection and operations can lead to increased customer confidence, buy-in and engagement.

7. Connect and become customer-centric

Policymakers aspire to increase voluntary retirement savings, but this is possible only when providers understand their customers’ behavior and needs.

Social media and other digital solutions are vital tools to building effective interaction with stakeholders. In effect, policymakers and providers face the same risks and opportunities that the banking industry experienced a decade ago when it began handing information, and therefore power, to the customer.