It’s an age-old problem when it comes to retirement: There’s a long-term savings gap in the global retirement system that’s making it hard for many people to live healthy and happy lives in their post-work years.
“[The savings gap problem] is one that’s been long in the making and gradually gets worse and worse,” says Jacques Goulet, president of health and wealth at Mercer.
But the good news is there might be some new solutions to fix it.
In its new report, “Bold ideas for mending the long term savings gap,” consulting firm Mercer has put forth proposals to improve the $70 trillion global retirement savings deficit.
One idea? Starting “a consumer revolution in financial fitness” by giving employees steady access to financial tools and advice.
“We are putting more and more ownership on the shoulders of individuals, whether it is an employer that has converted … from defined benefit to defined contribution, or whether it is the government cutting back on benefits or pushing the retirement age off,” Goulet says, adding that it’s now every person’s responsibility to take the reins of their own financial wellbeing, though most are not well-equipped to do that. It’s particularly difficult to figure out how much money a person will need in retirement.
The industry can continue to try and educate people by giving courses in financial literacy, “but my experience is that it does not work,” Goulet says. “That is why we come back to the revolution in financial fitness. What we need to do is engage the consumer in experiences that are a lot more positive, a lot more interesting, that allows them to engage in a simple manner, that they are able to track their progress and they get rewarded along the way.”
Financial tools play a big part. And those tools offered to employees must be high quality because “the consumer or individual is not an economics, demography or financial expert,” Goulet says. “It is not always easy to understand where there are good vs. bad products. Employers and the government are well-positioned to do the vetting.”
Mandate retirement savings?
One thing the U.S. retirement industry should consider is making retirement savings compulsory, he says.
“Some countries in the world do that. That overcomes the inertia that might exist when savings is voluntary,” he says.
That could be a hard sell in the U.S., Goulet says, because mandates go against many people’s values “which is totally understandable and agreeable.”
Mercer’s Melbourne Global Pension Index, which the company puts out annually, ranks countries around the world on the strength of their pension systems, according to different criteria. Those that score well have features in their systems that are compulsory, Goulet says. They make savings compulsory and when people enter into retirement, they ensure that they draw down their savings through lifetime income as opposed to taking it in a lump sum.
Another retirement concept that needs to be reevaluated is the concept of a retirement period.
“We need employers and governments to recognize the value of older workers,” Goulet says. “They have experience, they can do mentorships. They bring a lot of value and they are the fastest-growing part of the population, so even in terms of how they will drive the economy.”
He believes that the country needs to embrace the fact that many people would like to continue to work longer. They may not want to continue working the same long schedule or as intensely as they have in the past, but they might be happy with flexible work arrangements if employers are willing.
Some of the ideas put out by Mercer would be well-received in some countries and not well-received in others.
“Should we shy away from delicate debates? Probably not,” he says. “It may lead to different outcomes in different countries. The sheer size of this challenge requires people to be open and willing to look under a bunch of different rocks to see what could be learned from the experience of others.”
