The Future of Retirement Security An International Comparison through the Lens of Adequacy, Sustainability, Equity and Plan Design
By Surya Kolluri, Catherine Reilly & David P. Richardson
Countries around the world are considering and implementing reforms to their retirement systems for a variety of reasons, including increasing demographic and economic pressures. A key demographic driver is human longevity. For example, the average retiree can expect to spend about two decades in retirement, roughly double the time from 50 years ago. In the United States, life expectancy has risen by 17 years since the Social Security program debuted nearly 90 years ago. This comes with tremendous opportunities, but it also comes with headwinds. Combined with lower birth rates, immigration challenges and lower productivity growth, countries are grappling with the conundrum of how to fund this expanded retirement period with a declining worker-to-retiree ratio.
Along with this demographic megatrend, ever fewer workers have access to Defined Benefit (DB) plans that promise workers a guaranteed income in retirement. Instead, many save for their own retirement through Defined Contribution (DC) plans, which do not automatically convert into income. Many of the reforms that we observe around the world revolve around the reaction to this change; that is, the retirement systems have moved from DB to DC and the countries are reevaluating these changes.
In this report, we study the experience of seven different countries and develop a standard framework for understanding how various factors impact their retirement systems. To be able to study the retirement systems in depth and understand their nuances, we limited our analysis to these seven countries. In future reports, we aim to include greater representation. Our goal is to identify the best ideas from the different countries and use these to develop an actionable template for the well-designed retirement system of the future. All countries have strengths and weaknesses, and while no retirement system is ideal, many countries have developed interesting solutions to the challenges posed by increasing lifespans, changing working patterns and the decline of traditional DB plans.
Source SSRN
