Future-proofing needed as Covid-19 exposes retirement system weaknesses

The Covid-19 pandemic has exposed weaknesses in global retirement systems, although it may also present an opportunity to "forge a new social contract to 'future-proof' retirement systems", research from Aegon has suggested.

The Aegon Retirement Readiness Survey, published in collaboration with Transamerica Center for Retirement Studies and Instituto de Longevidade MAG, revealed that 38 per cent of people globally are worried about running out of money in retirement.

These worries are perhaps not unfounded, as the Aegon Retirement Readiness Index (ARRI), which measures attitudes and behaviours about retirement planning, found that only 22 per cent of workers globally achieved a ‘high’ score.

Furthermore, whilst most (60 per cent) of workers globally had a strategy for retirement, only 19 per cent had a written strategy.

Despite this, the number of workers globally saving habitually for retirement increased from 40 per cent in 2020 to 42 per cent in 2021, with the biggest increases seen in the UK, China, France and Spain.

Indeed, the report noted that the UK in particular has seen an overhaul of structures in place to facilitate saving in DC plans, with the number of habitual savers increasing from 40 per cent to 47 per cent of the past decade, largely driven by auto enrolment.

However, the impact of the pandemic can still be seen, as the report revealed that, globally, only 38 per cent of workers whose employment was impacted by the pandemic were habitually saving, compared to 44 per cent amongst those who were not.

Even in the UK, where the furlough programme was used, those whose employment was affected by the pandemic were found to be 12 percent less likely to be saving habitually compared to those unaffected.

The report suggested that the extreme disruptions caused by the pandemic, including the impact on global financial situations, has exacerbated this “already precarious situation”.

However, it also argued that the pandemic offers “an unprecedented and urgent opportunity” to create a new social contract to address the challenges and create retirement systems that are for for 21st Century conditions.

Aegon Center for Longevity and Retirement executive director and Transamerica Institute CEO and president, Catherine Collinson, commented: “Globally and locally, we face an unprecedented, urgent opportunity to future-proof retirement.

"We can apply the lessons of experience and fresh ideas to create better, stronger, and more resilient retirement systems that enable everyone to age and retire with dignity.

“Working together – policymakers, industry, employers, and individuals – we can design more inclusive, equitable systems that address the ever-changing retirement landscape, and in a way that provides greater flexibility and security for people to work and retire on their own terms."

Hungary and Turkey were the only two countries in this year’s study to record a fall in their ARRI score, while Japan, France, Spain, Netherlands, Australia, U.K., China, and the U.S. have all recorded improvements by 0.2 or more.

As a result, the UK was ranked fifth out of the 15 countries included in the report, scoring a ARRI of 6.3 per cent, whilst Hungary and Japan were joint lowest score, with an ARRI score of 5.2 per cent.

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