Raising the retirement age is the “most expedient approach” to creating more sustainable pension systems, according to a new Credit Suisse report.
The 64-page ‘Rethinking retirement’ study published by the global financial institution last week cites lifting the age of entitlement as the easiest among four options to shore up pension systems.
“… raising the retirement age would be an obvious approach to reducing funding gaps, and could be complemented by incentives to encourage people to work longer,” the Credit Suisse report says. “… [it] would simultaneously extend the savings phase and shorten the average pension-payment period.”
Aside from tweaking retirement ages, the paper says governments could raise taxes, encourage savings or hope that “people might accept lower pensions in the future in order to guarantee long-term sustainability of the system”.
While many jurisdictions have raised their official retirement ages, the policy move remains contentious in other countries.
Just last week, for example, France backed down on plans to lift its full-pension access age from 62 to 64 following nationwide strikes and protest. The current NZ government also canned its predecessor’s commitment to gradually increase the retirement age from 65 to 67.
“Changing demographic profiles are putting pressure on existing pension systems around the world. Policymakers have faced increasing opposition to reform pension systems,” the paper says. “However, the longer the debate is delayed, the more difficult it will become to reverse the negative consequences of postponement.”
But if the simplest policy change is proving difficult to implement, the Credit Suisse report says retirement systems must ultimately respond to underlying demographic and social trends.
Governments will have to address the consequences of rising longevity, the changing nature of work and increased lifestyle expectations of retirees.
The report also notes developed world populations are more pessimistic about the future of their pension systems than counterparts in developing economies.
“People in developed countries seem to be more concerned about the sustainability of their retirement systems. They are aware of the need for painful reforms and have already seen some measures implemented in their own countries,” the Credit Suisse study says. “Consequently, their expectations regarding retirement benefits in the future are somewhat lower. On the contrary, in several developing countries, retirement systems are still maturing and younger generations expect to achieve better coverage.”
At the same, people in developing countries are more prepared to take on financial responsibility for retirement compared to developed world citizens.
About half of developing world respondents to a Credit Suisse survey said individuals should take more responsibility for retirement – almost double the proportion of those in wealthier countries where 27 per cent agreed with the statement.
The results could reflect demographic differences between the fast-growing and younger developing countries and older, mature economies. Furthermore, many developing countries don’t have well-established or trusted pension systems, the report says.
But the study says financial literacy will have to improve across the world as individuals shoulder more retirement planning duties.
Currently, Credit Suisse notes that investment management could be “the largest ‘asymmetric information’ market in the world”.
“Thus retirement savers will generally pay fees that are too high for the value they receive from investment managers, unless their savings are managed through fiduciary structures that level the informational playing field,” the report says.
In a release, Oliver Adler, Credit Suisse chief economist Switzerland, said the study highlights the growing pressure on global pension systems.
“Each country faces a unique challenge in ensuring that pension systems are sustainable and typically a mixture of measures are required so that pensioners can continue to enjoy the standard of living they are accustomed to,” Adler said. “We need to redress the way we look at retirement and the collective effort required to ensure an equitable and sustainable future is possible for all.”