Pension poverty, a stark reality!

Today’s retirement and pension plans were not designed for the current reality of people living longer, healthier lives. In many countries, pension systems have never been overhauled, and remain severely outdated. The “traditional” three stage life of school, work and retirement no longer functions in an age of unprecedented longevity, shifts in work and health outcomes and a rapidly changing and diverse workforce.

Previous World Economic Forum analysis predicted (at least!) a USD$400 trillion savings gap is likely by 2050 – and that’s only across the eight most populated or developed savings markets. Meanwhile, the United Nations predicted, globally, the population of over-60s will double to 2 billion people between 2020 and 2050.

Millennials and Gen Z, whose life has been surrounded by some element of technology, bringing life to the tips of their fingertips - whether it be online shopping, wearables, app-based systems - have come to expect speed and efficiency, as well as simplicity and good levels of service. The same is true when it comes to interacting with insurance! A key expectation is that these two generations, more than others, expect to be offered insurance that is tailored, easily purchasable and digitally managed.

Loyalty can be lost in an instant with over-complex products, poor service, lack of accessibility and convenience! For example, a well known Scandinavian insurance provider resorted to using gamification, an online quiz, to generate outbound leads and raise awareness for their dental insurance offering, providing participants a chance to win an electric toothbrush.

Equally worrying, with Gen-A on the cusp of joining the workforce, future generations are faced with the increasingly impossible task of not only funding the needs of a globally ageing population, but also their own future - technology will most definitely become the expected norm.

Furthermore, a challenge compounded by retirement funding structural issues, out of date systems, employment (in)stability, negative global economic forecasts and a general lack of financial education and literacy continues to impact higher levels of retirement savings and wider take-up of "auto-enrolment" systems.

It is clear, our different ways of working, living, and spending has made the “one-size-fits-all” retirement plans of the past, where money is saved up to be spent in the later years of life, neither feasible nor practical. Much like the wider Health & Benefits programmes, a “one-size-fits-all” approach is no longer appropriate nor is it practical or suitable.

Many people will either want or have to work past mandatory retirement ages! People are living longer, meanwhile, at the other end of the spectrum, we find many having to work longer to remain financially resilient in later life.

Population changes are a fact of life across Europe, but the problem is acutely different in Central and Eastern Europe where the low fertility rates that are commonplace in developed countries combine with high migration rates and low immigration more akin to developing nations - leading to an ageing workforce.

Using Serbia as an example, according to the National Pension Fund, and official statistics, almost three hundred thousand of the (nearly) 1.7 million pensioners in Serbia risk falling into poverty

The economic knock-on effects on a country striving to join the European Union are evident and amount to billions of dollars in the short term. In the longer run, there are also costs related to the fact that a smaller population of working age will have to contribute more to support the ranks of those of pensionable age. In 2021, according to the Statistical Office, Serbia had more pensioners than working-age people!

With a globally ageing workforce, with many women living longer than men, new ways to deal with the retirement savings gap will have to be created to address gender disparities, and the changing needs of our workforce, both current and future!

One “generation” facing difficult decisions are the gig-workers. Looking at various reports, the gig-economy, arguably those requiring financial stability and security the most, are being left behind in a financially vulnerable position.

By the very nature of what they do, and how they work, the low paid work creates an inability to properly save for their retirement. Unless pension systems change, many gig workers will be forced to work beyond “normal” retirement age largely because they will not have saved enough to be in a position to afford to retire, leaving them vulnerable with a financially insecure outlook.

If people can’t afford to retire, employers will have to deal with an increasingly ageing workforce! Financial worries and nervousness can impact mental health, potentially leading to anxiety, depression, sleep problems and short-medium absenteeism levels.

When we consider Financial Wellbeing is a core pillar of Wellbeing, the lack of general “pension” awareness and financial education remains a clear problem.

However, with money worries, anecdotally, being a key stressor for most people, this creates a great opportunity for employers to do more to help their employees by taking steps to support and acknowledge their financial wellbeing, which in turn can help tackle wider mental health issues too.

Simple steps can be taken as part of the wider strategy in place - financial education, advice and support for the multigenerational and generational diverse workforce, which is targeted and relevant for each employee group at different career stages is essential; as is engaged employees!

The reality is that apathy and retirement / pensions go hand-in-hand! A clear example of this is in Turkey. Through a combination of apathy, lack of financial education and concerns around affordability, there is significant low engagement with Pension / Retirement plans with the approximate number of employees opting out of the pension system exceeding 60%.

Improving financial engagement and proactive encouragement for our workforce of today and tomorrow to save more for their future is critical.

More can be done by raising the importance and awareness of the need to save for retirement, demonstrating the importance through personalised and holistic views of an individual’s finances. Coupled with using AI and wider technology that is appropriate, clear, accessible and responsible, and supports long-term financial education and awareness is key to the future retirement solutions!