Data & Research May 15, 2013

Retirement Readiness Needs Greater Effort

Lack of retirement readiness is a global problem, with retirement illiteracy a major factor.
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According to “The Changing Face of Retirement: the Aegon Retirement Readiness Survey 2013,” conducted by Aegon, the Transamerica Center for Retirement Studies and Cicero Consulting, only 20% of 12,000 individuals polled in 12 countries claim to have any understanding of financial matters pertaining to effective retirement planning (see “Retirement Unpreparedness Is a Global Problem”).  

When asked what services their employers or retirement plan administrators offered to help them prepare for retirement, 22% said they are given an annual retirement plan statement, 13% said they have access to an employer or retirement plan administrator website and 12% indicated they are offered an in-person meeting with a retirement plan adviser. Twelve percent said they are given educational materials, 8% have access to online retirement modeling tools, and 6% are offered webcast meetings and/or seminars about their pensions and saving for retirement.  

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The survey found more individuals in the U.S. have access to an employer or retirement plan administrator website (28%), are offered in-person meetings with a retirement plan adviser (23%), are given educational materials (24%) and have access to online retirement modeling tools (18%) than individuals in other countries.  

According to the survey, when offered these services or tools, the majority of individuals find them somewhat to extremely helpful in preparing for retirement: 

  • Annual statement: 88%; 
  • Employer or administrator website: 84%; 
  • In-person meeting with adviser: 86%; 
  • Education materials: 85%; 
  • Online retirement modeling tools: 92%; and 
  • Webcast meetings and/or seminars: 84%. 

The survey report offers recommendations toward addressing retirement risks based on the more balanced roles of government, employers and individuals.  

During a webcast about the findings, Angela Seymour Jackson, managing director of workplace savings at Aegon UK, offered the following recommendations: 

  • Retirement systems vary by country yet the fundamental need to achieve retirement readiness through a balance among governments, employers and individuals is the same. Government benefits require reforms to remain sustainable. Employers are evolving from pension providers to enablers. Personal responsibility is now paramount.  
  • Governments and employers have de-risked their pension offerings and transferred those risks to individuals – which has led to a greater financial reliance and “squeeze” on families. As governments and employers implement such changes, their plans should include resources to help individuals take personal responsibility so they can de-risk their own personal retirement.  
  • Policy makers and employers can help employees by enabling longer working careers, providing options for a phased retirement, and offering benefits (e.g., life insurance, disability, long-term care) that can financially protect them if they are unable to work. Employees should have a backup plan if forced into retirement sooner than expected.  
  • Equipping individuals with the right toolkit and confidence to ask good questions and make informed decisions is critical for success. Retirement readiness is more than just saving and investing, it involves setting goals about lifestyle, income needs, and family support, as well as charting a clear path for achieving them. Employers can play a greater role in offering ‘retirement preparation services’ to their employees.  
  • Providing financial and protection products can help individuals de-risk their retirement with certain guarantees and help avoid investment losses, long-term care expenses, or erosion due to inflation.   
The survey report is here.
Products May 15, 2013

Russell Updates Corporate Pension Finance Handbook

Russell Investments has updated its “Corporate Pension Finance Handbook,” which addresses topics affecting corporate pension plans.
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The firm added information about the Moving Ahead for Progress in the 21st Century Act (MAP-21) and pension risk transfer. Written for chief investment officers, chief financial officers and treasurers, the Handbook was compiled by Russell’s Bob Collie, chief research strategist, Jim Gannon, director, asset allocation and risk management, and David Phillips, senior investment strategist, and is divided into three sections—the pension plan and the corporation; pension plan basics; and special considerations for frozen and closed plans.

“Given how quickly these changes are occurring and the complexity of the market environment, we believe a reader-friendly handbook like this can play an important role,” said Collie. “It’s been very well-received because it provides decision-makers with an overview of the big issues and how they impact the sponsoring corporation.”

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The Handbook includes information about how to: 

  • Navigate pension liabilities in the face of Pension Protection Act (PPA) and MAP-21 requirements;
  • Manage pension expense on the income statement;
  • Understand the impact of defined benefit (DB) plan closure or freezing;
  • See how interest rate volatility impacts the plan; and
  • Look ahead to future pension accounting potholes.

 

“The trends that we see in pension plan management—such as the interest in liability-driven investing, fiduciary solutions (i.e., investment outsourcing) and multi-asset solutions—are not happening in a vacuum,” said Bruce Clarke, managing director, Client Service. “They are happening because managing a pension plan is a different challenge today than it was five years ago. Corporations need to understand this complex and shifting landscape and how it can affect them.”

Copies of the Handbook can be requested here and printable worksheets for analyzing plans can be downloaded by plan sponsors.

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