For the US and Australia, higher levels of optimism about the durability of savings in retirement is perhaps somewhat surprising. These are domiciles where annuitization is less frequent, and hence there should be a higher risk of running out of money in retirement.
Although the US and Australia have relatively mature DC systems, they differ markedly in terms of coverage and, therefore, participation. DC provision and participation is voluntary in the US, and the relatively strong confidence data in the US may have some association with the fact that DC participants are typically in better paid jobs, given that those jobs that tend to provide a retirement savings plan. In Australia, however, DC is a universal mandate and almost all employed citizens are covered. The results there are less likely to be derived by income status or mere participation. While not quantified within this report, cultural bias may also be a factor in responses across the spectrum of confidence indicators.
Lighting a Path in Retirement Design
When designing a retirement system, it’s crucial that we find ways to ensure that:
1. People are saving enough, and
2. People gain clarity on what they’ll need in retirement (and have the opportunity to modify their behavior accordingly).
Many mature DC systems – US, Australia and increasingly the UK – have embraced measures to help more people save. Australia has gone farthest, by mandating superannuation contributions; the UK has embraced automatic enrollment, obliging employers to enroll all employees in a plan (although they can opt out); and in the US, most employers that offer a plan now automatically enroll participants (although actual access to plans remains an issue).
Participants who are automatically enrolled are typically placed into appropriate investment strategies (gone are the days of cash equivalents as a default, although participants can make their own choices). Systems transitioning into DC typically introduce automatic or mandated DC plan enrollment, although contribution levels may not always be sufficient.
Importantly, while the most mature DC systems have developed successful approaches for the accumulation phase, none has yet to fully master the solutions needed for the retirement phase. A goal of this survey is to leverage global insights to help us understand how we can help both improve outcomes during the accumulation phase — and build better solutions for the retirement phase.
Knowledge is Power
How can we help make younger people become more confident about their journey to retirement and equip them with the information they need to enjoy better outcomes? And how can younger DC systems learn from the experiences of mature DC systems?
The advice from retirees in our survey is clear:
Start saving earlier, engage with your pension planning earlier, and save more.
"Don't depend on the government or your employer to save money for you. You have to do it yourself! Start early and set up a financial savings plan that saves at least 10% of your income each year for retirement and don't borrow money from it!"
US, Male, 70
"Engage early & often plus salary sacrifice."
Australia, Female, 68
Retirees are happier than those in the accumulation phases. Younger people must contend with the relative uncertainty of not knowing whether they are preparing sufficiently or how much they will need in retirement; they just think they won’t have enough.
Our survey illustrates how knowledge can empower consumers. Employees in more mature systems engage more with their pensions and have a more developed sense of ownership. Those in the early stage systems do not appear to have accepted the idea of having responsibility for funding their own retirement. Only about half of respondents in early-stage systems see primary responsibility for ensuring adequate income in retirement as resting with them, compared with 80-90% in US and Australia, and 70-80% in UK and Ireland (see below).
Participant has responsibility for ensuring adequate income among working population – select countries