Income replacement and securing pension benefits for multiple generations should be the guide to achieving adequate retirement income, said panelists at Pensions & Investments' inaugural Investment Innovation and the Global Future of Retirement conference.
Three panelists offered their views on how important the goal of adequacy is in designing pension systems.
“The question is, what constitutes (adequacy)?” said Ash Williams, executive director and chief investment officer at the $181.9 billion Florida State Board of Administration, Tallahassee. “And how do you pay for it? Unless people understand a pension contribution to be a real part of their compensation and not as something that they don't value, that is problematic.”
Pension plan design must be cross-generational, said Gordon Clark, professor and director of the Smith School of Enterprise and the Environment at the University of Oxford. “We can design a system that is adequate for this generation — but the idea is to be intergenerationally equitable,” Mr. Clark said.
The panel covered issues in the U.K., Australia, U.S. and Germany. “Adequacy is at the center of the political debate in Germany,” said Andreas Hilka, managing director-head of pensions at Allianz Global Investors Europe. Mr. Hilka said changes to proposed reforms in Germany, where the government is looking to reduce the retirement age for some to 63, which he said will cost Germany €190 billion ($258 billion) over the next 15 years. “And people wonder if (that money) could have been invested in a different way.”
Mr. Clark added that one adequacy threshold would be how to keep the retirement population and future retirees above the poverty line, and also addressed questions over sufficient financial literacy.
Karen Friedman, executive vice president and policy director at the Pension Rights Center, had the last word: “We have to keep promises to the pensioners of today, and redesign of the future.”