Longevity is wreaking havoc on employee retirement plans
By Paula Aven Gladych
With people living longer, pension systems have come under heavy pressure. Governments, particularly in Europe, have stopped offering generous state pensions and are shifting responsibility to individuals and employers.
Many people are working longer or taking up second careers after they retire to make ends meet in retirement. With all of that going on, the Transamerica Center for Retirement Studies, in collaboration with AEGON, released “The Changing Face of Retirement – The Workplace Perspective,” which assesses the role of employers, workplace retirement benefits, and workers in the U.S. and eight European countries.
The report, which surveyed 9,000 people in nine countries, found that employees increasingly are relying on company pension plans to fill the gap left by the governments no longer offering generous state pensions. Of those employees surveyed, two-thirds believe such benefits should be a basic part of any worker’s pay and conditions.
Even though nearly 60 percent of employees say they expect to work into their retirement, most companies do not yet offer the financial advice, re-skilling or opportunities their employees need to take up part-time work or carve out new careers, the report found.
Most of those surveyed didn’t understand the importance of company pension plans. They ranked access to an employer retirement plan as less important when choosing a new job than pay, holiday entitlements, health insurance and career prospects.
According to the survey, the first generation of employees, who only have defined contribution retirement plans, are set to retire within the next couple of years and they are finding out that they haven’t got enough money to retire.
Only 15 percent of those surveyed believe they were on track for retirement savings.
AEGON recommends that employers increase the number of employees participating in company retirement plans by introducing automatic enrollment with ‘opt-out’ rather than ‘opt-in’ provisions. It also recommends that employers help employees save more by giving them the option of increasing their contribution rates at fixed intervals, like every two years.
The report also recommends that employers give employees a choice of different savings plans and offer more financial advice and education at work to help them understand the decisions they have to make and the implications these decisions could have on their retirement.
It also recommended:
1. Where possible, increase incentives for employees to save more for retirement through tax benefits and employer contributions.
2. Make available simplified plan designs that provide attractive starter options for smaller businesses that don’t offer retirement plans.
3. Make it easier for employees to manage their savings after retirement by including products like private annuities as part of company pension plans.
4. Design company pension plan accounts so they are more portable and employees can take them with them when they leave.
5. Promote greater awareness of increasing life expectancy and changing work patterns.
6. Provide access to training and vocational health care.