The pursuit of effective pension solutions
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Walker & Dunlop appoints managing director
      Digital Alpha raises more than $1 billion for infrastructure fund
      John Haggerty
      Sector’s risks need to be weighed, consultant says
      A healthcare worker provides care for a COVID-19 patient in the intensive care unit at the Saint Joseph hospital in Marseille, France, on Nov. 20, 2020.
      Private equity’s health-care role draws spotlight
    • Philip Pearson
      Hymans Robertson chooses head of LGPS investment
      Daniel Celeghin
      Indefi hires New York-based managing partner
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
    • American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
      Michelle Dunstan
      Move to link exec pay to ESG integration growing
      The J.P. Morgan Chase logo displayed at a branch bank
      J.P. Morgan sells $13 billion of bonds in largest-ever bank deal
      John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
    • Pentegra joins with EPIC to offer 3(16) fiduciary services
      Interest rises in keeping retiree assets in-plan
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
      Pentegra launches pooled employer plan
    • Pension funds hear from beneficiaries on ESG – report
      Ivanhoe Cambridge sets 2040 net-zero carbon goal
      Church Commissioners set 25% emissions reduction target by 2025
      U.S. likely to join Europe in mandating climate risk disclosure – John Kerry
    • Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
      Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
    • Chinese stock risk up in first quarter, U.K. risk down – Qontigo research
      First Eagle starts small-cap equity team with liftout from Royce
      Sacramento County Employees rebalances equity, fixed-income portfolios
    • First Eagle starts small-cap equity team with liftout from Royce
       Kaitlin M. May
      Putnam Investments names head of global institutional management
      Paul Griffiths
      HSBC Asset Management selects next global head of institutional business
      Alex Bernhardt
      BNP Paribas AM picks global head of sustainability research
    • State pension plan funding advances in first quarter – Wilshire
      Sacramento County Employees rebalances equity, fixed-income portfolios
      CAAT pension plan scores 11.1% gain in 2020
      The headquarters of the California Public Employees' Retirement System, Sacramento
      CalPERS board votes to add long-term comp for CIO post
    • Walker & Dunlop appoints managing director
      First Eagle starts small-cap equity team with liftout from Royce
      Philip Pearson
      Hymans Robertson chooses head of LGPS investment
       Kaitlin M. May
      Putnam Investments names head of global institutional management
    • European private equity deal value, volume hit records for first quarter
      Paul Morrissey
      Blackstone Growth picks managing director to lead European investing
      Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
    • BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
      Australia’s Centuria makes takeover bid for Primewest
      CalSTRS indutrial property
      Investors hungry for industrial properties
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Chicago Policemen on lookout for passive manager
      Iowa Public Employees seeks investment consultant
      New York State Common slates $400 million for renewable energy
      Texas County commits $100 million to another Taconic credit fund
    • Chicago Policemen on lookout for passive manager
      Iowa Public Employees seeks investment consultant
      New York State Common slates $400 million for renewable energy
      Texas County commits $100 million to another Taconic credit fund
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • High-yield spreads narrow, default rates drop
      Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • High-yield spreads narrow, default rates drop
      By the Numbers for April 2021
      Graphic: The state of DC plans
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. DEFINED BENEFIT
June 26, 2017 01:00 AM

The pursuit of effective pension solutions

Addressing structural challenges by embracing emerging opportunities

David Lee Kuo Chuen, Harry Smorenberg, Michel Uitermarkt and Tim Wanders
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    "Pension underfunding is the climate-change moment of social systems" – the line that struck a chord at media outlets across the globe in May, when Michael Drexler said it accompanying the release of the World Economic Forum's white paper on retirement investment systems. A "global pension time bomb with a funding gap set to dwarf the world GDP" read the news release headline.

    As head of financial and infrastructure systems at the WEF, Mr. Drexler, unfortunately, is neither wrong nor exaggerating. It will be very hard, even for seasoned pension sector insiders, to properly address such a massive challenge. That's especially so since effective solutions might structurally change the fundamental landscape of the industry.

    The reality is that borders between industries, products and geographies are fading away. To capitalize on emerging possibilities, one should transcend existing silos and traditional concepts or definitions. Consumer behaviors are changing, as are social contracts and employment and retirement patterns. With that perspective in mind, allow us to assess the changing landscape, look far ahead at a future that might seem generations away, and bear with us as we zoom back in on the currently thriving niches and socio-behavioral changes happening now that will transform the retirement investment industry.

    Innovation agendas

    From a global perspective, we see a gradual move toward pension schemes focused on individuals' contributions rather than shared group benefits. In many Western countries, the innovation efforts of traditional pension funds are focused on the effective allocation of assets and the consequences of aging societies. A good number of funds are also finding technologically efficient ways to engage plan participants, while operational cost-cutting is a parallel theme. Relatively newer entrants in Europe and the United States build on efficient IT and liberalized markets to offer fairly traditional products or more innovative robo-advisory wealth management services. Overall, such players continue to operate from a structure quite similar to that of a traditional pension fund. For more radical innovation in financial services, one must look East.

    It is no accident that China is home to four of the world's five top fintech companies, according to a Feb. 25 article in The Economist. Those companies, Baidu, Ant Financial, Tencent and JD.com, are not pension funds. But with more than 400 million citizens using their phones as wallets, per The Economist, and almost half of all digital payment transactions conducted in China last year, a prime example is set on how new technology can leapfrog traditional infrastructure.

    Citizens worldwide are trying new things, too. Their perception of the concept of work, particularly their attitudes toward self-employment and gig economy work, is evolving fast. McKinsey estimates roughly 72 million people in the U.S. and Europe earn their primary income as independent workers, while a further 90 million people work independently on the side. Consumers are also rethinking ownership. Whether it be renting out a room through Airbnb or joining a car sharing scheme, attitudes are changing. Digital connectedness unleashes powerful networking effects on these trends.

    Pioneering leaders

    While having sufficient resources for old age is a key element to citizens' well-being, pensions are only a part of the picture. In April 2017, World Bank president Jim Yong Kim noted that two-thirds of all jobs in developing nations are threatened by accelerating progress in automation and robotization. Yet financial inclusion is an integral part of social stability. And it is under increasing pressure worldwide.

    When many people would not or could not depend on steady and sufficient income streams from traditional work, the most ideal outcome might then be that each person, individually, were a fractional owner of every service and product she or he might use.

    While widely dispersed ownership in proportion to individual needs might sound far-fetched, the current state of blockchain and cryptocurrency already enables anyone to hold fractional, decentralized and fluid assets that are digital and highly usable. Slowly but surely, legislation also is changing to accommodate such a new era. In fact, the groundwork of a whole new ecosystem in digital asset management is quietly being installed. Crossover products based on blockchain technology will find their way into the mainstream. The inherently inclusive nature of its architecture can shift a significant part of the (impact) investment movement from being activists for innovations toward actually becoming the driving solutions themselves. Using a needs-oriented mindset, vs. a wealth-focused investment approach, can position future-thinking financiers at the forefront here.

    Today's leading pension funds should partake, even if the financial returns or business alignments are not yet fully clear. Alignment with a new ecosystem will help make a more gradual transition into the future and may even result in new services for current customers. Technology that can cost-effectively focus more on specific characteristics of the individual also has the benefit of allowing mass customization in multiple dimensions. Planning for one lifetime instead of generations requires a redesign regarding longevity and (insufficient) income growth. Perhaps a new perception of securing financial continuity and sharing wealth is therefore in order. A transformation of the traditional savings models as the core pension product, toward a design that concurrently blends accumulation with decumulation, or use, would have significant potential to address part of today's challenges. Here, again the fractional and fluid nature of digital assets helps greatly.

    Conclusion

    Established players should not take it for granted that people will keep on participating in traditional ways by default. Our society has always gradually evolved, from ancient Greece and Europe in the 17th century onwards. Attitudes change, new, technology-enabled possibilities open up and the flow of money alters as a result. A data-driven civilization might very well mark the commencement of an era with new economic values. Just as use of assets has become more fluid, so will ownership of assets. The way we describe pensions will fade away. Today, having the luxury of a proper pension arrangement could certainly be considered an asset. It makes sense to wonder how parts of such an arrangement could become fluid in the future. Digital assets will enable this. Their value as an investment asset class will rise exponentially.

    From a societal perspective, decentralized and fractional access could be very beneficial. Properly organized, it could increase economic inclusion and social stability. These are two core pillars at the heart of traditional institutional investors like pension funds and insurance companies. As not all people will be capable or interested enough to navigate such new landscapes, well-known brands and trusted organizations could play an important role in that journey. Companies must position themselves in this new environment today, or risk irrelevance in the future. Whatever the specific products and services of blockchain and cryptocurrency may be: when financial transactions are a backbone to your organization, a new ecosystem operating outside of yours warrants your attention. Forming strategic partnerships and prudently joining radical experiments shield investors from inertia and allow them to learn from a potential "known unknown" factor affecting the future of the industry. Not only are negative correlation benefits to portfolio risk management available, you also have a unique opportunity in leading society toward greater economic inclusion.

    ​ David Lee Kuo Chuen is a professor of fintech and blockchain at the Singapore University of Social Sciences. Harry Smorenberg is the Netherlands-based CEO of Smorenberg Corporate Consultancy, founder of the World Pension Summit and founder, now owned and produced by Pensions & Investments, and chairman of the European & Global Payment Summits. Michel Uitermarkt is currently a Netherlands-based independent consultant. Tim Wanders, Netherlands-based is a technology entrepreneur who founded Amsterdam-based WeParc.com, a mobile end-to-end B2B and B2C gig economy platform.

    This article is an abbreviated version of "Pursuing Potential in Evolutionary Pension Structures.'' A full version of the authors' paper can be downloaded at www.investmenttransformation.com. In full disclosure, the authors have stakes in new digital infrastructure products as founders and investors.

    This article represents the views of the authors. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.

    Related Articles
    GM, PSA said haggling over $9 billion pension gap in sale talks
    N.J. pension, budget woes test resolve of governor, lawmakers
    GE's $31 billion hangover: Immelt leaves behind big unfunded pension tab
    Lower returns, rising cost of benefits and higher operating costs challenge pen…
    Independent News & Media to contribute additional €50 million to DC plan
    SWIFT's blockchain testing supports real-time liquidity monitoring
    Fintech brings data alive for Wisconsin fund
    Baidu selling majority stake in financial services arm to investors, including …
    Recommended for You
    R.I. treasurer seeks transparency laws for church plans
    R.I. treasurer seeks transparency laws for church plans
    Public pension funds adopt cost-sharing mechanisms to stem volatility
    Public pension funds adopt cost-sharing mechanisms to stem volatility
    Avery Dennison to terminate U.S. pension plan
    Avery Dennison to terminate U.S. pension plan
    Top questions for institutional investors
    Sponsored Content: Top questions for institutional investors
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center