Retirement Readiness 1

The Aegon Center for Longevity and Retirement completed its seventh Annual Aegon Retirement Readiness Survey, The New Social Contract: a blueprint for retirement in the 21st century This report examines retirement insecurities at a time in history in which megatrends are changing how people live, work, age, and retire.

The idea of a ‘social contract’ has been central to retirement systems in many countries around the world and has been since Germany became the first nation in the world to adopt an old-age social insurance program in 1889.

A social contract is an arrangement involving three pillars (or three-legged stool) including governments, employers, and individuals – each with a specific set of expectations and responsibilities. When established these social contracts emphasized government and employer retirement-related benefits and, to a lesser extent, the need for personal savings.

When these retirement systems were created, life expectancies were typically 65 years for most workers, which also happened to be the age of entitlement. Since then, the age of entitlement has remained largely unchanged, but life expectancies have increased significantly in most countries.

Today, due to increases in longevity and population aging, government-sponsored retirement benefits are under severe financial strain. Traditional defined benefit pension plans offered by employers are disappearing and being replaced by employee-funded defined contribution retirement plans.

With these shifts, individuals are expected to take on increasing risk and responsibility for self-funding a greater portion of their retirement. However, many are inadequately equipped to successfully to do so, and many are therefore at risk of not achieving a financially secure retirement.

This report examines the global megatrends shaping retirement and finds:

·       Increases in longevity and population, ageing are megatrends that are placing a growing financial strain on social security safety nets as well as workplace benefits such as defined benefit retirement plans.

·       Technology is changing the way people live and work. Flexible labour markets no longer mean a job-for-life. All of these changes and others impact retirement, which is recognized by some but not all of today’s workers:

·       Globally, the most frequently cited megatrend impacting people’s plans for retirement is the reduction in government benefits (38 percent). The second most frequently cited is increased life expectancy (27 percent), followed by volatility in financial markets (24 percent).

·       Of concern to the researchers is that relatively few survey respondents acknowledge any megatrends as impacting their retirement planning, especially megatrends relating to employment trends, technology and the financial markets