Today is Pension Awareness Day in the UK.

Did you know that the United Kingdom has a Pension Awareness Day on September 15th? The Pension Awareness Day takes place annually on September 15 with the aim to alert the nation that they need to save more for their retirement.

The campaign was created by Pensions Geeks which runs a series of tours and workshops across the country to help people understand how much they will need in retirement and what they need to do in order to reach their savings goals.

The initiative is supported by the Department for Work and Pensions as well as Pension Wise and Now Pensions.

Pension providers such as Aegon are also involved with a cross-country tour to get people engaged with their pensions.

But many advisers and many workers are unaware that this initiative exists, despite being the main point of call for many people seeking help with their retirement planning.

There are three main questions asked by those attending these events

1.      They want to know how they find out what is in their pension.

2.     Whether their Pension fund is enough.

3.     Most importantly what they have to do next.

There is no Pension Awareness Day in Canada that I am aware of, and perhaps there should be. The Pension Awareness day information for the United Kingdom can be found here https://pensionawarenessday.com/  There are a great many videos and webinars on this page, enough to answer general questions about pensions.

We have a problem in Canada and the US with people not saving enough for retirement so an initiative like this could benefit all of us. An interesting idea.

Living Longer means problems for pension funds

It is reasonable to conclude that having a higher pension will for many increase their longevity

Mark Webster, Business Development at Equiniti Pension Solutions, admitted that this may be simply a reflection of the fact that wealthy people tend to live longer on average - and that wealthy people tend to have bigger pensions - so they are both a sign of wealth rather than being directly linked to one another.

Research, by pension scheme administrator Equiniti, looked at the details of 610,000 deceased pensioners, and discovered that someone with an annual pension of between £25,000 ($38,440 US dollars) and £30,000($46,128 US Dollars) was likely to live almost a year and a half longer than someone with a pension of between £10,000 ($15,600 US dollars)and £15,000 ($23,000 US dollars) a year.

It found that those who lived on:

• £10,000 ($15,600 US dollars) to £15,000 ($23,000 US dollars) would live to an average age of 78.8 years,
• £15,000(23, 000 US dollars)-£20,000 (30,752 US dollars) lived to 79.62,
• £20,000 (30,752 US dollars) -£25,000 l($38,440 US dollars) lived to an average of 79.76,
• £25,000 ($38,440 US dollars) to £30,000($46,128 US Dollars) lived to the age of 80.21.

The same effect sees people in wealthier areas living longer than those from less well-off areas. Good News, if you want to live longer, you need to have a higher pension and live in a nice area. Well living longer is the trend not only in Great Britain but Average life expectancy in the United States rose by almost eight years from 1978 to 2011, to 78.7 years, according to the Organization for Economic Cooperation and Development (OECD).

American men are living an average of two years longer than they were in 2000, and women are getting an additional 2.4 years, according to new mortality projections from the Society of Actuaries (SOA). The SOA is the official keeper of the mortality tables used to calculate the value of future pension obligations, and longer lives mean greater cost for plan sponsors.

This means there is a need for retirees to focus on longevity risk as they set goals for retirement saving and withdrawal rates. And, when considering the numbers, it's important to remember that the mortality data simply reflect averages; many of us — especially women — can expect to beat those numbers.

But the new projections also will have direct implications for defined-benefit pensions. 

Maintaining pension plans will become more expensive for plan sponsors, because the longer life spans will require them to increase projected future costs on their balance sheets. The value of payouts will rise anywhere from 4 percent to 8 percent, depending on the age of the retiree.

That, in turn, likely will accelerate a major trend among plan sponsors to adopt de-risking strategies. Sometimes, that simply means reducing equity exposure in plan portfolios. But it also can mean offering lump-sum buyouts

There is a need for retirees to focus on longevity risk as they set goals for retirement saving and withdrawal rates. And, when considering the numbers, it's important to remember that the mortality data simply reflect averages; many of us — especially women — can expect to beat those numbers

But the new projections also will have direct implications for defined-benefit pensions. Maintaining pension plans will become more expensive for plan sponsors, because the longer life spans will require them to increase projected future costs on their balance sheets. The value of payouts will rise anywhere from 4 percent to 8 percent, depending on the age of the annuitant.

That, in turn, likely will accelerate a major trend among plan sponsors to adopt de-risking strategies. Sometimes, that simply means reducing equity exposure in plan portfolios. But it also can mean offering lump-sum buyouts.

If you are offered a lump sum payment you should think very carefully about accepting it. You might want to wait for a better deal down the road. But there's a caveat: The value of future offers also will be affected by interest rates, which are at historic lows. Higher interest rates would be reflected in higher discount rates, which are used to calculate lump-sum values and lower payouts.

Deciding whether to accept a lump-sum offer is a highly personal decision. A key factor is how healthy you think you are in relation to the rest of the population. If you think you'll beat the averages, a lifetime of pension income will always beat the lump sum. The bigger picture of your retirement assets also matters; some people decide to take lump-sum deals when they have other guaranteed income streams, such as a spouse's pension or high Social Security benefits.

Others think they can do better by taking the lump sum and investing the proceeds. That is possible, but it needs to be weighed against the risks of withdrawing too much, market setbacks, or living far beyond the actuarial averages. However "doing better" on a risk-adjusted basis means you would have to consistently beat the rate used to calculate the lump sum by investing in nearly risk-free investments — certificates of deposit and Treasuries — since the pension income stream you would receive is guaranteed, with the exception of failed plans.

Although lump-sum buyouts are take-it-or-leave it deals, there could be additional buyout windows down the road in many cases, as sponsors work to reduce their pension obligation

So if you live longer do you want to take the chance and see if you can do better than well managed pension funds. It is safe to say that the dollar value of your pension, isn't going to be the biggest determinant of longevity. Given that your retirement income is only likely to have an impact on your health and wellbeing in the final third of your life - there is a good chance that your general wealth throughout your earlier life is likely to have a bigger impact on your overall health and longevity.

However, you have to ask yourself what you have to lose by saving more for retirement. While you may be hoping to boost your longevity, at the very least, saving more in your pension will mean that when it comes to retirement you'll be able to afford a better quality of life - even if the quantity falls short of your ambitions

Some views on Pension and pension reform from around the world

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

Canadian pension system outshines U.S. one

Worried about your pension system, if  you are in Canada, Australia or the Netherlands you need not worry as much as if you were living in the USA, according to a report, published on the BenefitsCanada website. The report was written by The National Institute on Retirement Security, which  is a United States non-profit research institute established to contribute to informed policy making by fostering a deep understanding of the value of retirement security to employees, employers, and the economy as a whole. NIRS works to fulfill this mission through research, education, and outreach programs that are national in scope I thought it was an interesting story to share. For more information check out the slideshow on their findings here or to read the report go here, or to listen to the report go here

 

Canada’s pension system receives a lot of criticism, but things here are better than they are south of the border. The Canadian system—as well as the Australian and Dutch ones—outshines the American one, new research reveals.

While the amount of risk borne by employees varies across the retirement income models of Canada, Australia and the Netherlands, risks are pooled among workers or offset by employers and the government to a greater extent than in the U.S., according to a research paper called “Lessons for Private Sector Retirement Security from Australia, Canada, and the Netherlands.” The paper is authored by John A. Turner, director of the Pension Policy Center, and Nari Rhee, manager of research for the National Institute on Retirement Security.

The research of Turner and Rhee shows that in none of these three countries does the average employee alone absorb all of the funding, investment and longevity risks in order to reach, with the help of government assistance, a basic standard of living. By contrast, in the U.S., nearly all of these risks are borne by the individual, rendering the majority of the country’s employees woefully underprepared for their golden years.

“Americans are struggling to save for retirement,” says Rhee. “The typical family has only a few thousand dollars saved.”

The research also finds that—compared to the U.S.—Canada, Australia and the Netherlands offer greater economic security in retirement through higher income for low- and mid-wage workers provided by government assistance and universal or quasi-universal employer-sponsored retirement plans.

In Australia and the Netherlands, universal or quasi-universal employer-sponsored programs provide a significant supplement to government retirement income.

The paper suggests that, while all countries are unique, the U.S. could borrow elements from the pension programs of Australia, the Netherlands and Canada.

Australia
Australia’s universal workplace retirement system is a DC system in which employees are individually responsible for investment risks. “However, the success of the system is based largely on nearly universal coverage and high mandatory employer contributions, which are now a gross 9% of pay and will rise incrementally to a gross 12% of pay in 2019,” the study notes. Australia is also setting standards for things such as fee disclosure and financial advice.

The Netherlands
Funded primarily by employers, the Dutch pension model provides some of the highest income replacement rates among wealthy nations. Employers are shifting market and longevity risks toward employees, but employees absorb those risks as a group and intergenerationally—not as individuals. Employers are passing on the risk to workers through the increased use of hybrid workplace retirement plans, called Collective Defined Contribution Plans. These are DC plans from an employer’s perspective but hybrid DB plans from the employees’ perspective.

Canada
Canada has a voluntary employer-sponsored retirement benefit system with lower coverage than the Australian and Dutch models. However, it also has a two-part government income system that replaces more than 70% of lifetime average wage-indexed earnings for low-income employees and about 50% for median-income workers, the study says. In Canada and the Netherlands, employee contributions to both DB and DC plans are tax-deductible.

Pensions, How They Do It Elsewhere

The following was written by Steven Greenhouse and published in the New York Times on May 14, 2013, in the post he compares how the US is doing in providing pensions with some other countries. An interesting read.

The United States can boast that it has the world’s best basketball players, fighter jets and country and western singers. But hardly anyone would ever boast that the United States has the world’s best retirement system.

Fifty-eight percent of American workers are not even in a pension or 401(k) plan. The Social Security system faces the threat of a huge shortfall. One-third of America’s retirees get at least 90 percent of their retirement income from Social Security, with annual benefits averaging a modest $15,000 for an individual. And just ask any participant in a 401(k) plan about the scary roller-coaster ride of the last six years.

Scores of other countries have elaborate retirement systems, and some of them avoid the biggest pitfalls of America’s retirement system.

In Australia, there is nearly universal participation among workers in a 401(k)-type retirement plan because of a government mandate. In the Netherlands, pension laws require that workers’ 401(k)-like plans be converted into lifetime annuities to ensure they do not spend down all their savings before they turn 75 or 80.

In Britain, the government has pressed retirement fund managers to keep administrative fees on many plans to less than half the average in the United States.

A new report ranking various countries’ retirement systems gives the United States a C, considerably worse than the A received by Denmark and the B-plus given to the Netherlands and Australia. The study, by the Mercer consulting firm and the Australian Center for Financial Services, weighs adequacy of benefits, breadth of coverage and other factors, and points to numerous weaknesses in the American system.

Those shortcomings include contribution rates too low to assure adequate retirements for middle-class Americans and many workers withdrawing large sums from their 401(k)’s before they retire.

The report also cites poverty-level retirement benefits for many low-income workers and pensions that fail to keep up with inflation. It also points to the common practice of retirees withdrawing large sums from their 401(k)’s soon after retiring, leaving many without an adequate income stream if they live past 80.

Lia van Wijk, 58, the chief financial officer at a policy research center in Amsterdam, praises the Dutch retirement system, which combines a Social Security-like fund with a nearly universal pension system to which employers contribute.

“It’s rather a good system,” she said, noting that she had at first worried that she would not have a large enough pension because she had once spent many years traveling abroad. But now she feels reassured, having steered additional money into her pension fund.

Ms. Van Wijk likes the Dutch system of converting workers’ pension reserves into an annuity upon retirement. “There are real advantages to taking an annuity,” she said.

She complained, however, that the Netherlands had increased its retirement age from 65 to 66 1/2. Fearing budget deficits and large unfunded retirement liabilities, the Netherlands has joined Britain, Italy, the United States and other countries in raising its retirement age, a move that increases contributions to the system while holding down outlays.

“The Dutch realize that there can be too much leakage,” said Peter Kiveron, director of the Holland Financial Center, a research group, insisting that the United States and other countries make it too easy for people to take large amounts out of their 401(k)’s long before they retire and as soon as they retire, causing people to run out of funds well before they turn 75 or 80. “The Dutch have learned their lessons and have a very rigid system.”

Even a cursory study of retirement systems abroad makes clear that many countries are far more willing than the United States to mandate painful steps by employers and workers.

Chile requires workers to contribute 10 percent of each paycheck to a 401(k)-type fund. In Australia, employers must contribute 9 percent of each worker’s salary into a retirement fund, and that contribution is set to rise to 12 percent in 2020. Australia’s politicians, conservative and liberal, concluded that the country’s version of social security was providing retirees with too paltry a basic retirement check.

In the United States, such moves would prompt many to denounce heavy-handed grabs of workers’ pay and expensive burdens on employers. But experts say it would be wise to study other nations’ systems for tips on strengthening America’s system.

John A. Turner, director of the Pension Policy Center in Washington, said some foreign features might not fit American culture, like mandated participation in the pension system as in Australia and Chile. He does not advocate such a mandate.

“We’re quite different from many other countries,” he said. “There’s an emphasis on individual freedoms and rights and responsibilities versus collectivism — although I admit we will never have high pension coverage without some form of mandate.”

“In the United States, collective is a four-letter word,” agreed Harry Smorenberg, head of a Netherlands-based consulting firm on pensions and founder of the World Pension Summit.

The United States does have some mandates, although they are often overlooked. Employers must pay 6.2 percent of each employee’s salary into Social Security, and every employee must also contribute that amount.

A second pillar of America’s retirement system — 401(k)’s — is voluntary, although some employers have embraced automatic enrollment for their employees while giving them the right to opt out. The third pillar is individual savings, including individual retirement accounts or I.R.A.’s. The Center for Retirement Research at Boston College warned that 53 percent of American households were at risk of not having enough to maintain their living standards in retirement.

Teresa Ghilarducci, a professor of economics at the New School, said America’s voluntary system was badly broken because nearly six out of 10 workers were not in pension or 401(k) plans. She favors an Australia-type mandate.

“We use our tax code far more than other countries to try to encourage socially beneficial behavior,” she said. “We’re spending hundreds of billions of dollars to incent people to save for retirement through 401(k)’s and I.R.A.’s. That costs us a huge amount of money without much effect on getting people to save for retirement.”