International Retirement Reform

Efforts
National Press Foundation

David C. John
AARP Public Policy Institute

December 2, 2018

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Most Countries Face Pressure on Social

Security Systems

• Long-term demographic trends mean longer times in retirement.

– Longevity at age 65 is the key measurement, not at birth

• Raising retirement age is difficult politically & may not solve the problem

• Increasing taxes is unpopular & has labor market effects

• Means testing is unpopular & difficult to administer

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Seeking Other Ways to Provide Retirement

Income

• Sweden adds a market element to social security

• New Zealand has a flat citizenship pension
• Canada has an investment based element to its government benefits

• Most nations seek to add a savings-based supplemental pension

• Chile shows that savings alone is not sufficient

• The problem of low interest rates & stock returns

• Defined benefit plans being phased out – Netherlands, Germany, etc.

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Real Retirement Savings Reform Has Six

Parts (at least)

1. Coverage
2. Participation
3. Sufficient savings contributions
4. Appropriate investments
5. Portability & leakage
6. Retirement Income

• It is tempting to deal with one element & declare the problem solved
– This is a serious mistake

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1. Coverage

• Mandatory
– Through the employer – Australia, UK, Switzerland, Germany, Chile, Singapore
– All employees must participate or be offered a plan
– Contributions come from employer, employee, or both

• Voluntary
– Employer can choose whether to offer retirement benefits or not – US

• The unresolved problem of non-employees (gig workers, independent contractors, self-employed)

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2. Participation

• Mandatory:
– Australia, Switzerland, Singapore, Sweden

• Auto Enrollment:
– UK, New Zealand, Ireland (coming)

• Through a union contract:

– Netherlands, much of Europe

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3. Sufficient Savings Contributions

• Most people have no idea how much they need to save

– High amounts discourage participation
• Essential – especially in times of lower investment returns

• Set amount – Chile, Australia

• Escalation of mandatory contribution – UK, Ireland
• Auto escalation – US

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4. Appropriate Investments

• Provident fund – Singapore

• Pooled investment fund – Denmark

• Individual choice – UK, US

• Default investment choice is extremely important – UK, Ireland (poor so far)

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5. Portability & Leakage

• Savings locked until a set age (UK, Australia) or available (US, New Zealand)

• What happens when you change employers?

– UK’s NEST has 38% not contributing
– Australia had more accounts than people

• One fund that moves with you – Chile

• Dashboard to help manage (& find) all accounts – Denmark & Norway
• Auto portability – US experiment

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6. Retirement Income

• A universal problem

• Pension determined by investment performance – Sweden, Denmark

• Lump-sum normal – Australia, New Zealand

• Phased withdrawal – UK (partial)

• Annuity – Formerly UK

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No One Country Has Perfect Solution

• Some countries have solved part of the problem, but no one has solved it all

• National plans are based on individual country economy, politics & history
– Therefore not easily transferred to another country

• As circumstances change, so may plans – Eastern Europe

• Americans can learn from international experience, but resist it

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Questions or suggestions?

David John
Senior Strategic Policy Advisor
djohn@aarp.org

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