Video Conference Call in Office Meeting Room

Retirement system spillovers increase success and sustainability

Insights from a recent focused and qualitative study commissioned by IFC and conducted by EY teams.

In brief
  • Demographic transformation and aging populations put pressure on the fiscal, economic and political development of many countries.
  • The value from spillovers across the retirement and capital market ecosystem is substantial.
  • The contribution of the spillovers to overall socio-economic and retirement success and sustainability is fundamental.

Download the full report

Fully funded public and private pension, retirement and social security systems may deliver relief with an often-forgotten mechanism: compounded investment returns. Market statistics show the compounded investment returns can pay for up to 66 cents of every benefit dollar paid in fully funded systems. By contrast, employees, employers, or government budgets pay for all or a large portion of benefits in un- or underfunded systems. This difference demonstrates the need to evolve focus and policy development to maximize success of public and private pension and retirement systems. And it shows the connectivity to capital markets as accumulated retirement-risk capital, spillover effects and compound interest minimize financial demands for stakeholders.

Insights from a recent focused and qualitative study commissioned by IFC and conducted by EY teams indicate far deeper and mutually beneficial socio-economic aspects between private retirement systems, capital markets and socio-economic development through the spillover effects. The interdependencies between funded private retirement systems, capital markets and the wider socio-economic ecosystem can have transformational impact on development and sustainability across many aspects and stakeholders, particularly in developing countries.


About the retirement system spillover research


Public and private pension and retirement research often focuses only on policies and expected outcomes for beneficiaries and the system as a whole. This research, by contrast, focused retrospectively on key observable drivers for success of private pillar 2 (occupational or employment-based) and pillar 3 (voluntary, supplemental and individually funded) retirement systems and their ecosystems in selected, mostly developing countries. As a baseline, EY teams created a systematic balanced and hypothesis-driven “leading practice framework” that covers the ecosystem, capital market and other relevant qualitative, quantitative and stakeholder behavioral context. 


Defining “success” of the funded private retirement ecosystem


Modern funded private retirement systems mostly prioritize adequacy, with less focus on sustainability and integrity as key tenets of system success. A significant focus is on “retirement and directly relevant policy parameters,” and expected rational behavior. Little research focuses on the journey of delivering the policies in practice over decades, the role of mostly private sector providers, the wider ecosystem impacted by accumulation of large long-term risk capital pools and their often-vital secondary impact.


In simple terms, we focused on the spillover effects and secondary interdependencies between funded private retirement system, capital market and the relevant wider ecosystem and stakeholders that impact outcomes and sustainability with their decisions and parameters.


The insights call for creative new collaboration across the ecosystem. New opportunities arise for providers, long-term investors, and international development partners to assist in unleashing the spillover effects more systematically, providing capital to fund necessary infrastructure and supporting domestic retirement and capital markets stakeholders to build better outcomes and sustainability.

About this article

Related articles

How innovations in retirement services drive new options for consumers

The future of retirement will be driven by innovations in technology and offer more choice, flexibility and plan portability. Find out more.

Pension and benefits administration 2030: overall financial wellbeing

For systems, funds, and their executives and boards, five key questions arise for the future of pension and benefits administration.