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Why Retirement Really Begins at 21
Few would argue the imperative for pension reform. Yet reform focused solely on people at retirement age is not enough. Real and sustained transformation demands that agencies engage with people in new ways decades earlier.
At different phases of their lives, working age and retired people have different needs. As such, social services agencies traditionally have an organisational or customer split between these groups. Pension reform for today demands that agencies break through these boundaries and remake when and how social security pension organisations connect with customers.
Accenture Pensions’ new view of pension reform centres on the notion that, in most cases, retirement should be the end of a customer’s relationship with pension agencies—not the beginning. Interactions with retirees should be low friction—an initial assessment of entitlement followed by decades of smooth and regular payments. Interactions during working age should be intensive and focused on helping people set up and build a strong pension while they can.
Why must pension organisations change? In today’s demographic, policy, operations and economic climate, the status quo is not sustainable. While there is momentum for change and recognition of the high cost of inertia, reform tactics such as increasing pension age or reducing the support people receive do not adequately address these challenges.
The elephant in the room for pension organisations—and for people from working age through retirement—is the enormous shortfall in retirement funding in countries around the world. This reality ultimately translates into a wide gap between the income that people expect to live on during retirement and what they will actually get—a disparity that is increasingly top-of-mind for many.
In fact, 82 percent of respondents to the Accenture Global Retirement Services Survey say that they are worried about their financial situation after retirement, and 57 percent believe that their standard of living will drop when they stop working.1
With the affordability, sustainability and adequacy of pension provisions mired in this uncertainty, public pension organisations must look at their role in a broader context. This means operating with intention as part of a three-tiered system that distributes provisions differently and for different purposes:
Tier I: Bread. National state schemes providing basic provisions.
Tier 2: Beer. Employer pension schemes supporting quality of life.
Tier 3: Champagne. Personal investments that can enhance retirement.
Because most people cannot secure their retirement by depending solely on provisions from national state schemes (and few governments could afford to support citizens at their expectation level, even if they wanted to), the need for alternate provisions is clear. Change starts with public pension organisations engaging with working age people to enhance Tier 2 provision—that being the tier that will make the most difference to the quality of life for most people.
Pension organisations’ engagement should focus on strategies and approaches that increase people’s reliance on Tier 2 provision:
Outreach. Pension organisations should develop outreach initiatives that involve communication, education and even incentives to help working people understand their options, plan for the future and enroll in employer schemes.
Analytics. Analytics can help working age people who are in a position to help themselves and target them. Using data including tax, national insurance contribution or credit agency reference data, agencies can determine which citizens are enrolled in employee schemes and which citizens are not, but should be. From there, agencies can target appropriate outreach.
Portable schemes. Because so many people switch employers during their careers, providing state-endorsed/funded processes, platforms or clearinghouses for workers to move employer-based pensions from one job to another or otherwise amalgamate them would help strengthen occupational pensions for many people.
Risk management. Government plays an acknowledged role in regulating activity in the commercial and financial sector. Improving regulation of employer schemes can build savers’ confidence and improve the credibility of the pension industry. One way to do this would be to use analytics to drive a risk-based view of employer pension schemes to support early intervention and assistance and reduce the incidence of financial default.
1Accenture Global Retirement Services Survey: Consumers See the Light as Retirement Shortfall Looms
October 1, 2012
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