2 minute read 26 Sep 2018
how to reach better pension outcomes

How to reach better outcomes by reimagining pension investment and governance

By

Josef Pilger

EY Global Pension and Retirement Leader

Passionate about helping governments, providers and members to more effectively tackle demographic transformation. Champion for better retirement outcomes for all.

2 minute read 26 Sep 2018

A solvent, sustainable and transparent pension and retirement system is a key pillar to building a better working world. 

Aging populations, demographic transformation and responsibility for long-term savings moving from the state to the employer to the employee are three of the most critical megatrends facing today’s global economy. Supporting the financial well-being of millions is further elevating the importance of managing pension and retirement assets to maximize investment and benefit outcomes.

Our global research reveals that the required magnitude of necessary financial well-being pension assets may exceed USD $500 trillion. This emphasizes the need for public and private companies, governments, policymakers and other providers to rethink current strategies, challenge established beliefs and work together to build a better retirement world.

Many governments, post-financial crisis, recognize that financial well-being policy promises are the country’s single largest long-term financial liability. This is leading to widespread benefit reform pressure and increased public scrutiny on costs, fees, returns and other associated aspects such as executive remuneration.

More stakeholders ask if fiduciaries and policymakers are performing their legal duties as asset owners. To counter fee pressure and maximize benefits from economies of scale, more pension funds are embarking on insourcing of asset management and assets. Government as well as public and private sector providers and stakeholders are increasingly asking questions, which we have used as a baseline for this investment-focused research. Across the globe, there is a clear distinction between pension, retirement and social security organizations. For simplicity, we broadly refer to this group in our findings under the “pension” umbrella.

This report sheds light on current industry trends and stimulate debate among stakeholders. EY firmly believes that a solvent, sustainable, transparent pension and retirement system is a key pillar to building a better working (and retirement) world.

Many governments, post-financial crisis, recognize that financial well-being policy promises are the country’s single largest long-term financial liability.

About the pension research

In our research, we focus on how the industry copes with substantial increased growth in pension and retirement assets. We interviewed 50 public and private sector stakeholders, as well as corporate pension and retirement organizations, and asset managers — collectively representing more than USD $10 trillion AUM. For government, public and private sector pension retirement and social security funds and providers (asset owners), we wanted to understand the degree to which they have industrialized their investment governance and operations to drive increased efficiency:

  • How have macro-economic asset management strategies changed in response to pressures?
  • How mature are investment operations: investment risk management, governance, investment operations and technology platforms?
  • How are they adjusting their strategies for insourcing and outsourcing asset management?
  • What are the drivers (e.g., cost, regulatory pressure)?

For asset managers, we wanted to understand their level of readiness:

  • How are they preparing for growth in pension and retirement assets and changing asset owner needs?
  • How are they protecting their revenues as pension funds increasingly insource their investment management (e.g., creating new types of services to entice pension and retirement fund investors)? 
  • How are they working with asset owners to create a more sustainable pension and retirement industry (e.g., annuities, guarantees, assisting with direct to consumer offerings)?

Our detailed quantitative research findings are framed in 10 provocative working hypotheses that are supported by EY analysis and interpretation based on global client experiences. We discuss these in detail in our article titled, “10 recommendations for better pension retirement outcomes.

Summary

Public and private companies, governments, policymakers and other providers need to rethink current strategies, challenge established beliefs and work together to build a better retirement world.

About this article

By

Josef Pilger

EY Global Pension and Retirement Leader

Passionate about helping governments, providers and members to more effectively tackle demographic transformation. Champion for better retirement outcomes for all.