Retirement time bomb must be addressed worldwide
2 September 2009
Employers will play an increasingly critical role across
the globe in shaping public policy and addressing concerns over pension
benefit costs, as the ratio of elderly persons to the working-age population
rockets over the coming years, warns Mercer.
The World Economic Forum, in association with Mercer and the Organisation
for Economic Cooperation and Development (OECD), has published Transforming
Pensions and Healthcare in a Rapidly Ageing World: Opportunities and Collaboration
Strategies, addressing the need for strategic thinking from employers
and policymakers.
“The report makes a compelling case for immediate and collaborative
action by the private and public sectors,” explained M. Michele
Burns, chairman and chief executive officer of Mercer. “Even more
impressive, the analysis sets out a pragmatic blueprint for transformation,
by identifying the most promising strategies and providing key scenarios
of the future against which to consider the effectiveness of each. The
key strategies range from the now existing, but underappreciated, to new
and highly innovative options that merit serious consideration.”
In conjunction with the report, Mercer has published a special Perspective
paper, in which its experts draw upon practical experience consulting
in retirement, healthcare and workforce managements.
The conclusions drawn from the report are that defined benefit (DB) plans
must address fund performance relative to liabilities. Timeframes for
making decisions on this are, Mercer said, shrinking at the same time
that strategic investment decisions have become more complex. The financial
consultant recommended that governing fiduciaries consider delegation
to professionals whose only objective is to maximise returns and avoid
unnecessary risks.
In terms of defined contribution (DC) pensions, Mercer is concerned that
too few plan members actually understand their own objectives and needs,
and often fail to correctly choose and update their investment options.
Mercer said decision-making should be simplified and made less frequent,
and that contributions should be affordable to encourage lower-paid employees
to look at joining a scheme.
“At a time when recovery from the recent economic turmoil places
pressure on already-stretched resources, this research provides global
leaders with a powerful decision-making framework for evaluating and prioritising
alternative pensions and healthcare financing strategies. Employers, providers
and governments will need to collaborate in new ways to meet the challenge
identified by this research. In particular, the massive challenge we face
of financing pensions and healthcare during the unprecedented ageing of
societies requires collaborative intervention at earlier stages in life
and not only near or at retirement age. This research is a clear call
for strategic thinking by global leaders reviewing their pension and healthcare
agendas. Mercer intends to continue to work in partnership with many major
employers to seek out effective innovation and practical solutions in
these areas,” added Burns.
