The New Wild West: Retirement

May 2, 2012

In today’s (April 24, 2012) Boston Globe, two articles caught my attention.  The first highlighted the fact that Social Security funds would likely be depleted by 2033, leaving retirees with 75% of promised benefits.   The other discussed an allegation of fraud against the California Public Employees’ Retirement System (Calpers), the nation’s largest pension fund.  While very different in content, the two articles highlighted the singular question that the both current and future retirees are asking: Will my money be waiting for me when I get there?

 Since this is a question that seemed like it could (should?) be plaguing the population as whole, I wondered exactly how widespread the issues and concerns are.  A Google News search of “pension funds” retuned about 9,870 results and a search of “retirement funds” retrieved about 5,240 results.  Clearly this is a hot and relevant topic.

 I scanned the links returned for each and clicked through to some of the articles located to read more.  My process was by no means scientific, but it didn’t need to be for several relevant themes to jump out at me, like:

 It’s a global issue.  As headlines scream about money running out while populations start to age, people all around the world have a heightened and more immediate interest in retirement-related financial issues.  Japan has the world’s most rapidly aging population and a scandal involving AIJ Investment Advisors saw a loss of 109.2 billion yen (of 145.8 billion yen managed) from derivatives that were traded over a nine-year period, causing quite a stir, to say the least. (The global nature of the issue is reflected in the themes below as well.)

 Reform is needed.  Funds in the United States are dwindling and change is needed to get Social Security back on to solid ground, reform that requires more bipartisanship than has been seen of late in Washington.  Beyond Social Security, there is no shortage of pension reform debate taking place at both the state and local levels in the United States, in locations both large and small.  Russian pension fund reform is set to start taking place this year with a provision that allows state pension funds to increase investment in stocks (currently <1% of assets are invested in equities), and call for change is afoot in other countries as well, such as the UK where there has been talk of the introduction of a new type of plan, Defined Aspiration pensions.

 Defined Benefit (DB) plans will continue to come under increased fire.  Still predominant among public-sector employees, these plans have vocal supporters and vocal critics globally.  The primary criticisms revolve around inherent unfairness (do they funnel money away from others needlessly?), the role of risk (what does it really mean when a pension is underfunded?), and job stagnation (do employees lack incentive to change jobs/exhibit high performance?).  The long and short of it is that each type of plan: has supporters and detractors, imposes a different kind of risk on investment managers and end clients,  and has a far-reaching impact on the interaction between them.

 There’s no shortage of both fact and opinion about pensions and pension funding globally.  It’s a hot-button issue not just fiscally, both also politically and socially.  Investment managers, financial product vendors, and the end clients of both must—at a minimum—acknowledge the impacts on them and ensure that the products, service, and support these impacts, particularly around diversity and transparency.  At PORTIA, that means we are constantly working to understand changing market requirements and working with clients to understand how their business is changing and what they need as a result. In turn we ensure that our products and services evolve to support those changing needs so that clients can remain competitive, differentiate themselves, and deliver value to changing and demanding end customers.

 – Nicole Comeau, Product Manager


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