Re­tire­ment sav­ings short­fall could hit $400 tril­lion by 2050

‘We’re re­ally at an in­flec­tion point’; Canada among coun­tries fac­ing prob­lem

The Hamilton Spectator - - BUSINESS - KATHER­INE CHIGLIN­SKY

Longer life spans and dis­ap­point­ing in­vest­ment re­turns will help cre­ate a $400 tril­lion re­tire­ment-sav­ings short­fall in about three decades, a fig­ure more than five times the size of the global econ­omy, ac­cord­ing to a World Eco­nomic Fo­rum re­port.

That in­cludes a $224-tril­lion gap among six large pen­sion-sav­ings sys­tems: the U.S., U.K., Ja­pan, Nether­lands, Canada and Aus­tralia, ac­cord­ing to the re­port is­sued Fri­day. China and In­dia ac­count for the rest.

Em­ploy­ers have been shift­ing away from pen­sions and of­fer­ing de­fined-con­tri­bu­tion plans, a cat­e­gory that in­cludes in­di­vid­ual re­tire­ment ac­counts and makes up more than 50 per cent of global re­tire­ment as­sets. That heaps more risk onto the in­di­vid­u­als, who of­ten face a lack of ac­cess to the right op­tions as well as the re­sources to un­der­stand them, ac­cord­ing to the World Eco­nomic Fo­rum re­port. Stock and bond re­turns that have trailed his­toric av­er­ages in the past decade have also con­trib­uted to the gap.

“We’re re­ally at an in­flec­tion point,” said Michael Drexler, head of fi­nan­cial and in­fra­struc­ture sys­tems at the World Eco­nomic Fo­rum. “Pen­sion un­der­fund­ing is the cli­mate-change mo­ment of so­cial sys­tems in the sense that there is still time to do some­thing about it. But if you don’t, in 20 or 30 years down the line, so­ci­ety will say it’s a huge prob­lem.”

A short­fall of about $400 tril­lion could be reached by 2050, the World Eco­nomic Fo­rum said. The fig­ure is de­rived from the amount of money gov­ern­ment, em­ploy­ers and in­di­vid­u­als would need to pro­vide each per­son with a re­tire­ment in­come equal to 70 per cent of his or her an­nual earn­ings be­fore leav­ing the work­force.

The gap is par­tially driven by an ag­ing world pop­u­la­tion. Life ex­pectancy has risen on av­er­age by about a year ev­ery five years since the mid­dle of the past cen­tury, and half of ba­bies born in the U.S. and Canada in 2007 may live to 104, ac­cord­ing to the re­port. In Ja­pan, the fig­ure is 107 years.

Gov­ern­ments can ease the fi­nan­cial bur­den by in­creas­ing the tar­get re­tire­ment age. Peo­ple would also ben­e­fit from im­proved fi­nan­cial ed­u­ca­tion and ser­vices. “A lot of the good so­lu­tions al­ready ex­ist some­where in the world. Just no one has figured them out all to­gether,” Drexler said. “There’s al­most no new in­ven­tion nec­es­sary.”

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