TIAA TMRW. Big ideas. Better retirements.
Global retirement plans: emerging solutions.
Time to read: 3 minutes
Key takeaways
- Countries around the world are reforming their retirement systems to account for increases in longevity and other demographic and economic pressures.
- The average retiree today will spend about two decades in retirement, roughly double the time from 50 years ago. But most workers save for retirement through defined contribution (DC) plans, which do not automatically convert savings into income.
- To finance retirement in today’s environment, successful countries have adopted a hybrid model that combines the best elements of defined benefit (DB) and DC plans.
TIAA Institute study notes a cross-border shift toward hybrid retirement systems.
Longer lives, changing working patterns and the precarious funding for traditional pensions—the U.S. is far from alone in grappling with a stressed retirement system. Countries are addressing the challenges in disparate ways. The TIAA Institute recently undertook a rigorous review of six of them (in addition to the U.S.) to spotlight the best ideas and biggest takeaways.
The TIAA Institute report, “
The study identified a range of policies: Singapore introduced a financial literacy test and asset minimum for savers who wish to self-direct their own investments rather than save through the government-run Central Provident Fund. In Sweden, which has a state-run pension, participants can choose to take only a partial benefit at first and leave the rest invested, or they can pause payments mid-retirement if they return to work.
Each system has found its own way to balance personal responsibility and top-down mandates.
Hybrid retirement: Flexibility meets sustainability
Each system has found its own way to balance personal responsibility and top-down mandates. Despite their different starting points, all the countries appear to be moving toward hybrid solutions that combine the flexible and sustainable elements of DC systems with the lifetime income and longevity risk-sharing elements of DB plans. For example, policymakers in the U.S., Australia, Canada and U.K. are on a trajectory of introducing more mandates and promoting lifetime income, while policymakers in the Netherlands, Sweden and Singapore are allowing participants to make more individual choices.
Countries that continue to offer guarantees in workplace pensions, such as Sweden and the Netherlands, have been most aggressive in raising future retirement ages to improve sustainability. They have also introduced mechanisms to allow income levels to adjust based on market rates, cohort life-expectancy and plan solvency. Meanwhile, the U.K. has mandated that all employers provide workplace plans and automatically enroll employees into them. Australia’s system has for 30 years required employers to make contributions on behalf of their employees into a superannuation fund that employees cannot touch before age 60.
Stabilizing pensions using fiduciary standards
Fiduciary standards aren’t established overnight. Sweden’s hybrid retirement system suffered a string of scandals in the 2010s after some funds being offered on its platform proved fraudulent. As a result, Sweden established a fund-selection agency in 2022 to monitor which funds can be offered through the government’s platform. The example shows the importance of having a strong fiduciary standard when offering investment choices, something the U.S. established through ERISA. Systems seeking to allow more choice must ensure oversight and governance to protect savers against potential bad actors, combined with clear and regular communications that help people understand the choices available to them.
Like what you’re reading?
Get more retirement plan insights delivered to your inbox.
Making lifetime income automatic
Behavioral nudges matter everywhere, and policymakers can have a large impact on behavior through the defaults they set. Most savers across borders accept the default investment or income option and relatively few want to choose their own investments. The U.K. experience is a compelling example of the power of defaults; since employers were required to enroll employees into a retirement plan, coverage among private-sector workers doubled to almost 90%, even though workers can opt out.
“A clear takeaway is that policymakers should aim to design systems that lead to expected good outcomes for the average worker, especially because most do not engage,” says Surya Kolluri, head of the TIAA Institute.
For the U.S., which comes from a starting point of individualized, voluntary DC plans, moving toward a hybrid retirement system implies introducing more forceful nudges and more guarantees. Additionally, measures to ensure the long-term financial viability of Social Security will be key to ensuring the long-term sustainability of the U.S. retirement system.
Discover why we say it’s time to
Insights on the ready
See what you missed in our earlier webinars.
Get more out of TMRW.
Contact us.
Have questions or need more resources? Connect with us.
Stay current.
Get TIAA thought leadership first.
Want to read more?
Explore all the articles from Edition 4.