E&Y Offers 7 Steps to Building a Better Retirement World

A new report offers a global perspective and some key findings on the challenges and opportunities of various retirement markets.

“Building a Better Retirement World,” published by consulting group Ernst & Young, was based on more than 80 interviews with pension and retirement professionals in 18 countries across the Americas, Asia-Pacific and Europe. The report highlights not only challenges, but some potential retirement and business opportunities, as well.

With those components in mind and in addition to a pension and retirement “heat map,” the report’s seven key findings were:

Noting that 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, the authors call on providers and policymakers to use “long-term vision and political discipline to drive tough but necessary pension and retirement reform,” including benefit reductions and “outsourcing” outcome responsibility.

The report notes that assets in many emerging market pension and retirement systems are increasing at a far greater rate than local capital markets are developing, straining national financial systems in terms of operational risk, regulatory oversight, liquidity and infrastructure. The authors note that in order to maximize and balance pension outcomes, “many levers in local markets will need to evolve and expand.” They go on to note that to do so will “require diverse experience and capabilities in the assessment, decision and implementation aspects of retirement and pension reform.”

The authors caution that 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” and acknowledge that this comes with a cost. As a result, the report notes that providers must ensure their retirement solutions align across multiple jurisdictions and regulations while still supporting sustainable delivery of better retirement outcomes.

Explaining that 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, the report cites the successful transformation brought about by industrialization in other mass-transaction markets (such as banking and securities processing). The authors write that the retirement and pension industry has an opportunity to leverage the experience and infrastructure of those markets.

With the post-crisis capital market forcing retirement and pension providers to reevaluate their investment strategies, asset allocation policies and operating models, the report notes that 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.”

The report notes that, in most markets, pension and retirement systems are “overly complicated” and that for beneficiaries, this complexity reduces confidence and engagement. Cautioning that few pension systems actively manage this dimension, the report calls for simplifying communication, product selection and operations in ways that can lead to increased customer confidence, buy-in and engagement.

“Policymakers aspire to increase voluntary retirement savings, but this is possible only when providers understand their customers’ behavior and needs,” according to the report, which states that 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.”