The Climate of Reform

Pensions and the $500 Trillion Dollar Prize

Industry stakeholders face mounting pressure to develop more robust and clearer long-term distribution strategies

Key public and private sector stakeholders face mounting pressure to develop more robust and clearer long-term pension and retirement distribution strategies as reforms and consumer choices increase, warns a new report by EY, The $500 trillion prize: A customer-centric vision for the global pension and retirement market.

The report, based on insights from governments, policymakers, pension industry executives and corporate employers, underscores that these key stakeholders will need to collaborate more closely if they are to succeed and improve consumers’ financial well-being as the retirement and pension landscape shifts in focus from defined benefits to defined contributions.

The report notes that addressing this transformation collaboratively will require policy and industry change in many countries to help consumers make informed decisions. Distribution, according to the report, includes the framework, policies, incentives and all actions related to designing, offering and spreading pension and retirement products and services through the retail customer base.

Josef Pilger, EY Global Pension & Retirement Leader, says:

“Reforms give consumers choices without adequately considering the experiences and perceptions they have and the information and tools they need to make informed decisions. People are not as disengaged as we often believe. We need to change our attitude, policy and delivery and work together to focus on the customer instead of the products and help them make the best possible decisions to build their financial well-being.”

One-third of respondents lack long-term strategy

Vision, strategy and role clarity are the foundation of public confidence in pension administration, the report finds. However, one-third of survey respondents lack a clearly defined long-term pension and retirement vision and strategy.

In particular, governments, policymakers and regulators recognize the significant need to improve their long-term pension and retirement strategy, as governments may be an underwriter of last resort for pension and retirement gaps. According to those interviewed for the report, only two-thirds of governments, policymakers and regulators have a clearly defined long-term strategy.

The private sector also will play an important role in setting vision and strategy, as providers have experience and infrastructure to help address distribution challenges, according to the report.

Empowering consumers to make informed decisions will help distribution

The shift from defined benefits to defined contributions means consumers and employers face more decision points about participation and investments, the report shows, though consumers may then lack the appropriate information to make informed financial decisions.

Not surprisingly, corporate employers appear to be ahead of other stakeholders in providing adequate advice and information to plan participants. Seventy-five percent of corporate employers in the survey said they had a professional system in place, though they could make improvements. Just one-quarter rated their capabilities as “leading.”

People are not as disengaged as we often believe. We need to change our attitude, policy and delivery and work together to focus on the customer instead of the products and help them make the best possible decisions to build their financial well-being

The report finds that empowering consumer engagement and informing their decision-making through additional communications, support and planning must become a key tenet for all pension and retirement systems and solutions.

Digital can support informed choices, but is still in its infancy

The pension and retirement industry is still determining how to maximize the long-term opportunities digital applications offer, the survey shows. Half of corporate employers give themselves low digital maturity scores, while 54% of governments, policymakers and regulators acknowledge the need for adopting digital communication and technology.

Digital maturity ranges from social media use to a long-term digital strategy, systemic use of big data and analytics, digital marketing, and disruption through digital pensions and the Internet of Things. Technological advances also can help providers reduce the cost of advising and investing as well as complying with regulatory demands.

The survey suggests that while administrators understand the bigger picture of moving toward digital platforms, the respondents also recognize that this element is only part of the solution toward creating greater efficiencies.

Pilger says: “Digital can help the process of moving the evolution toward consumer empowerment forward. But it is one piece of the puzzle. Leaving behind the paternalistic approach of the defined benefit system and taking a complete view of consumers’ financial needs can help them achieve their financial goals.

“We need to transform and align policy, regulation, culture and delivery infrastructure to empower adequate decisions, experience and approvals. The prize is substantial and will deliver a better retirement world for all stakeholders.”



About EY
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
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About the report
The report was compiled from almost 200 interviews and more than 150 questionnaires with top representatives of governments, policymakers, regulators and pension industry executives in 21 countries across the Americas, Asia-Pacific, Europe and Africa. Participants were asked to self-assess their maturity levels on a scale of 1 (low) to 5 (high).