TOWARDS A NEW PENSIONS SETTLEMENT
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Towards a New Pensions Settlement
The International Experience
Volume II
Edited by
Gregg McClymont and Andy Tarrant
Lanham Boulder New York London
Published by Rowman & Littlefield International Ltd
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Copyright 2018 by Policy Network
All rights reserved . No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review.
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ISBN: PB 978-1-78660-710-2
ISBN: eBook 978-1-78660-711-9
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Library of Congress Control Number: 2017958878
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Contents
Martin Gilbert
One of the biggest public policy challenges of this century is retirement. Specifically, in a world of ageing populations, how do governments ensure that savings grow large enough to enable citizens to retire in comfort and decency? This question is all the more urgent in the midst of a global shift from defined benefit to defined contribution pensions. As governments and employers reduce their exposure to risk by closing pension schemes underwritten by their guarantees, the onus is increasingly on individuals to make their own provision. The democratisation of risk is the result: greater rights for individuals, but greater responsibilities too in the managing of the risks which investment, inflation and longevity bring. Asset managers and pension schemes must also adapt to the growth of defined contribution providing appropriate investment strategies and associated services which help individuals manage their risks and meet their retirement objectives. This interesting book illuminates the variety of provision existing among nations which are early adopters of defined contribution. Best and worst practice is always worth learning from and each chapter is written by an expert on his or her own countries pension system. As the world gears up for the age of defined contribution pensions, this is a good place to start.
Gregg McClymont and Andy Tarrant
Last year our book Towards a New Pensions Settlement: The international experience looked at countries hailed as recent trailblazers in workplace pension reform. This volume, casts the net wider and asks whether the lessons drawn in volume one are supported by the experience of defined contribution pension schemes among some of their earliest adopters. The countries reviewed by national experts in this publication are: Chile, Denmark, Hong Kong, Ireland, Mexico, New Zealand, Singapore and the United States.
Key themes which emerged in our previous book resurface throughout volume two: costs and charges, transparency, scale provision, governance, and the particular challenges of decumulation. Regulatory weaknesses identified as problems in our first review are confirmed as flaws common in systems dominated by defined contribution provision. Two further issues are prominent in this volume. First, the setting of minimum contribution levels too low to generate reasonable retirement incomes. Second, the potentially negative impact of early access to pension savings. The wider importance of investment in delivering decent retirement savings and retirement incomes is examined in the concluding chapter.
Costs, charges, transparency
Costs and charges can occur at three levels: the administration layer, where contributions from savers are collected and income paid out; the fund layer, where the sums collected at the administration layer are invested and fees are charged by the fund manager; and by the fund layer, where the costs of undertaking investment with other intermediaries are deducted from the monies in the fund. Concern over high costs and charges are noted in the Chile, Hong Kong, Ireland, Mexico and United States chapters. Although the Hong Kong and New Zealand chapters do not focus on this, there is regulatory action in the former to lower charges which are high by international standards, Denmark sits at the other end of the spectrum: scheme total expenses ratios range from 0.1 per cent with ATP, the government-backed provider, to one per cent in total. Furthermore, these costs and charges are transparent.
The Need for Scale Provision
Size potentially makes a huge difference to the ability of a pension scheme to negotiate reasonable fees with administrators and fund managers. Administration of pension schemes is dominated by fixed costs, so fragmentation penalises members of small schemes. But size is also related to expertise: generally speaking, large schemes can attract more qualified professionals, especially on the investment side. Some of the regimes explored in this volume have been good at facilitating the rise of schemes with scale: Denmark, Mexico and Chile. Others have been poor at doing so: Hong Kong, Ireland and New Zealand. In the US there are mega schemes, but too few.
