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EY Study: The Value of Assets Managed by Pension Funds World-Wide Needs to Grow 5-Fold in the Next Decade

Date: 09/28/2015
Source: EY

Key public and private sector stakeholders face mounting pressure to develop more robust and clearer long-term pension and retirement distribution strategies as reforms and consumer choices increase, warns a new report by EY, The $500 trillion prize: A customer-centric vision for the global pension and retirement market.

The global active population has reached five billion people. Though not all will retire at the same time, the average person needs at least $100,000 in retirement savings — and considerably more in developed countries. Yet, the current size of the retirement asset pool is less than $100 trillion at most. Players in the pensions’ sector face a huge challenge – a five-fold increase of the total pool of retirement assets over the next decade. Achieving that daunting yet essential goal will be an enormous challenge that demands close partnership among all stakeholders.

The EY report, based on insights from governments, policymakers, pension industry executives and corporate employers, underscores that these key stakeholders will need to collaborate more closely if they are to succeed and improve consumers’ financial well-being as the retirement and pension landscape shifts in focus from defined benefits to defined contributions.
The report notes that addressing this transformation collaboratively will require policy and industry change in many countries to help consumers make informed decisions. Distribution, according to the report, includes the framework, policies, incentives and all actions related to designing, offering and spreading pension and retirement products and services through the retail customer base.

Why are long-term strategies stalling?
Vision, strategy and role clarity are the foundation of public confidence in pension administration, the report finds. However, one-third of survey respondents lack a clearly defined long-term pension and retirement vision and strategy.
In particular, governments, policymakers and regulators recognize the significant need to improve their long-term pension and retirement strategy, as governments may be an underwriter of last resort for pension and retirement gaps. According to those interviewed for the report, only two-thirds of governments, policymakers and regulators have a clearly defined long-term strategy. The private sector also will play an important role in setting vision and strategy, as providers have experience and infrastructure to help address distribution challenges, according to the report.

How can consumers take more informed decisions?
The shift from defined benefits to defined contributions means consumers and employers face more decision points about participation and investments, the report shows, though consumers may then lack the appropriate information to make informed financial decisions.

Not surprisingly, corporate employers appear to be ahead of other stakeholders in providing adequate advice and information to plan participants. 75% of corporate employers in the survey said they had a professional system in place, though they could make improvements. Just one-quarter rated their capabilities as “leading.”

The report finds that empowering consumer engagement and informing their decision-making through additional communications, support and planning must become a key tenet for all pension and retirement systems and solutions.

Can the digital area be a solution to support informed choices?
The pension and retirement industry is still determining how to maximize the long-term opportunities digital applications offer, the survey shows. Half of corporate employers give themselves low digital maturity scores, while 54% of governments, policymakers and regulators acknowledge the need for adopting digital communication and technology.
Digital maturity ranges from social media use to a long-term digital strategy, systemic use of big data and analytics, digital marketing, and disruption through digital pensions and the Internet of Things. Technological advances also can help providers reduce the cost of advising and investing as well as complying with regulatory demands.
The survey suggests that while administrators understand the bigger picture of moving toward digital platforms, the respondents also recognize that this element is only part of the solution toward creating greater efficiencies. Digital can help the process of moving the evolution toward consumer empowerment forward. But it is one piece of the puzzle. Leaving behind the paternalistic approach of the defined benefit system and taking a complete view of consumers’ financial needs can help them achieve their financial goals.

Pensions in Romania and in the EU – a comparison
According to new data published by OECD, The World Labor Organization, The European Commission and The National Statistics Institute, the salary/pension ratio is relatively the same for the average tax payer in Romania and those in the EU. The nominal values are, however, quite different – a Romanian will receive a monthly pension of 294 Euro in 2050, if his or her salary will reach 1,000 Euro, while an average EU citizen will receive 1,170 Euro monthly pension in 2050, if his or her salary will reach 3,000 Euro.
At the moment, the average monthly pension in Romania equals 200 Euro, while in Greece it reaches 882 Euro, and in France 1,032 Euro. This is why, 35% or Romanian elders have a poverty and social exclusion risk, almost double than in the EU as a whole, where 18.3% of elderly people are in this situation.

Notes to Editors

About the report
The report was compiled from almost 200 interviews and more than 150 questionnaires with top representatives of governments, policymakers, regulators and pension industry executives in 21 countries across the Americas, Asia-Pacific, Europe and Africa. Participants were asked to self-assess their maturity levels on a scale of 1 (low) to 5 (high).

About EY Romania
EY is one of the largest global professional services firms, with 212,000 employees in over 700 offices in 150 countries and revenues of approximately USD 28.7 billion in the fiscal year that ended on June 30, 2015. Our Network is the most globally integrated and its resources help us in providing customers with services that take advantage of opportunities around the world. In Romania, EY is one of the leading professional service providers on the market since its inception in 1992. Over 650 employees in Romania and Moldova provide seamless assurance, tax, transaction and advisory services to multinational and local companies. We have offices in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. EY Romania joined in 2014 the only global competition dedicated to entrepreneurship, the ‘EY Entrepreneur of the Year’. The local winner represents Romania at the world final which takes place every year in June in Monte Carlo. The title awarded after the world finals is World Entrepreneur of the Year. For more information, visit our website: www.ey.com.
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