Good governance, consolidation and engagement are the fundamentals of a working retirement system, delegates heard at an annual Pensions and Lifetime Savings Association conference Oct. 16-18 in Manchester, England.
Retirement fund executives said building a retirement system that would close a retirement savings gap, which is expected by the World Economic Forum to reach $400 trillion globally by 2050, is needed in the U.K.
With the U.K.'s own gap projected to amount to $33 trillion of the global share, speakers said plan executives should improve engagement efforts to set up plan participants to save adequately for their own circumstances and use the benefits that come with investing under consolidated vehicles, including a way to invest in illiquid assets and boost accountability of money managers.
But with plan participants' savings increasingly in flux, it is not an easy task, they said.
With employees holding an average of 11 jobs during the course of their careers, plan executives called on their peers to adapt their approach to investment management and retirement plan design.
Following a successful staging of the auto-enrollment legislation in the U.K. over the past several years, "auto enrollment is popular, and it is a good foundation, but we need a better setup for women, better engagement, and affordable and scalable solutions in decumulation," Helen Dean, CEO of the National Employment Savings Trust Corp., London, said during a panel discussion.
Ms. Dean also said the idea of boosting retirement outcomes should not be reduced to increasing levels of contributions beyond the current 8% paid by employees and employers combined. "At some point we will disturb inertia and people will cease to contribute," she said.
Instead of increasing mandatory contributions, Ms. Dean proposed that more defined contribution plans consider creating savings buffers aimed at plan participants who are challenged financially. Sidecar accounts, which the £8 billion ($10.1 billion) NEST offers to its member employers in a trial, can help plan participants to build up a rainy day account of £1,000.
Ms. Dean noted a difference can also be made if plan participants are setting the additional voluntary contribution saving targets themselves.
Appearing on a separate panel, Catherine Harvey, senior policy adviser at AARP Public Policy Institute, endorsed NEST's initiative, calling NEST's sidecar savings model was "quite promising."
"It's a recognition of pressure that households don't have emergency savings," she said.
Other panelists were more skeptical as to whether engagement efforts boost retirement outcomes over public policy interventions. Gregg McClymont, director of policy at the £7 billion The People's Pension, West Sussex, England, said defined contribution systems around the world are going through a process of change in terms of finding out what delivers the best outcomes.
"There isn't one system that depends on engagement for good outcomes. The engagement is in fact low in every one of 19 defined contribution systems," he said.
Instead, "Governance is a much better (tool) than engagement," he said. "Because members don't engage, you have to get governance in their interest," he added. For example, in Australia, he said, the success of the retirement system lies in the large sectorwide industry funds run collaboratively with trade unions and employers.