Many countries’ pension systems are facing combined pressures. Increasing life expectancy and decreasing birth rates mean that fewer workers pay taxes and social security contributions to support retirees. Additionally, because reaching old age is becoming more common, state healthcare and care systems are far more expensive. Higher rents and higher mortgage rates can add strain on household savings.
The impact these converging trends will have on future retirement incomes remains uncertain. But it is clear that people will become more reliant on private retirement savings (whether employer or employee-financed).
Our research on pension adequacy, employee sentiment, and employer action reveals some of the challenges shaping retirement risks.
Evolving and heightening retirement risks
Financial education would help companies and their employees understand what they may need to save to retire in line with their goals. In this year’s Global Talent Trends Study, 86% of employees said that they plan to work beyond their normal retirement age.
However, the reality is likely to look different in many cases. More people are spending a higher proportion of their lives in ill health. This can force people to retire early if they are unable to find alternative employment that meets their needs. Businesses could be missing out on opportunities to plug talent and skills gaps by increasing the recruitment of older workers.
As a result, families will increasingly have to support two generations in retirement. This could become a real problem where multi-generational families rely on the financial support of the working generations.
Better information and tools to model retirement outcomes will be essential for effective retirement planning. Although flexible working is now more common, we need to improve flexible retirement options. Currently, only one in three (32%) companies proactively offer phased retirement options.
Greater flexibility will help employees transition gradually into retirement. This means people have more time to contribute to their retirement pot, and delays drawing on their savings until later in life.
Read the full article by Graham Pearce, Global DB Segment Leader / Marsh McLennan
