Effective pension systems deliver adequate lifetime retirement income at an affordable cost to all. Two changes in current behavior will be required to achieve this ambition: 1. Changing the conversations we have about pension reform, and 2. Changing the conversations we have about the goals and strategies of investing retirement savings.
David Blake, director of the Pensions Institute at Cass Business School in London, has been researching pension policies for three decades.
"Life expectancy has been increasing by roughly 2.5 years per decade in countries in the European Union for the last 150 years," Blake said,, Retirement age has been roughly the same, 65, since the late 1940s in many countries in northern Europe. But during that time, people's life expectancy has gone up by 10 or 12 years."
Assuming that, in light of generational fairness, each generation should spend the same proportion of adult life working, retirement age has to go up, the economist argues.
In Canada, besides raising the retirement age, the federal government is adding more letters to the alphabet soup that spells out how Canadians save for retirement.
Ottawa unveiled its proposal for the TBP, or Target Benefit Plan which is a voluntary plan would be open to those who work for Crown corporations or federally regulated businesses such as banks, railways, and airlines.
TBPs would offer a minimum level of guaranteed benefits with an option to add on and contributions that are set within a specified range. Both could be adjusted over time based on market conditions and the plan’s performance.
The framework for the so-called shared-risk plan joins a crowded lineup of retirement income and savings vehicles — CPP, OAS, RRSPs and TFSAs — amid a noisy debate over whether Canadians are saving enough for their golden years.
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In the Isle of Man, taxes will not rise but the pension supplement, retirement age and means testing are all likely to come under scrutiny as the government battles to solve an impending pensions crisis.
Treasury Minister Eddie Teare said the government would not shirk from addressing the issue and all universal benefits had to be considered.
‘I am hoping to collate all the information we have, then embark on a series of road shows around the island to explain the problems we have to people and say we are working on various suggestions,’ he said. ‘We are keen to plan for the next generation not the election.’
The looming crisis was highlighted last week in the Manx Independent. As the number of people over the age of 65 is predicted to increase by 93 per cent from 15,000 to 29,000 in the next 30 years, the national insurance fund is expected to start collapsing in about 20 years’ time and by 2050 it could be completely exhausted.
Another possibility is raising the retirement age. This is currently 65, and set to rise to 67 in the UK between 2026 and 2028.
‘When pensions were first introduced, they were means tested and people lived an average of two years after retirement. Now people often draw a pension for 20 years
In Chile a large proportion of the Chilean population is seriously dissatisfied with the size of pensions generated by the current system, said former pensions undersecretary Augusto Iglesias at an industry event in Santiago this week.
Private pension holders expect a pension worth roughly 70% of their salary at the time of retirement, a percentage that the system on the whole is failing to deliver. "If the problem isn't fixed quickly and effectively, the stability of the system will be compromised," said Iglesias, who suggested raising contribution rates and pushing back the retirement age as the best ways to bring pensions in line with people's expectations.
So what is going on in Germany? In Germany the governing coalition has decided to actually bring retirement age down - from 65 to 63 years - if a person has been paying into the employees' state pension fund for 45 years.
Their proposals are in addition to those from conservatives who want to increase pensions for mothers whose children were born before 1992. Current pension rules, they said, penalize older mothers.
In the European Union pensions are a completely national matter, so they differ widely from one EU member state to the next. In 2009, the most recent year for which comprehensive data is available, the retirement age for women in Slovakia was 57.5 years. At the other end of the scale is Sweden, where some workers can only retire at the age of 67
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