Guaranteed Income, Shoring Up Social Security Suggestions for Improving U.S. Retirement System

This year, the U.S. scored a 58.8 overall in the Melbourne Mercer Global Pension Index, up from 57.8 in 2017.says the slight increase in the U.S.’s score was due to a number of small changes in the adequacy sub-index. 

Now in its tenth year, the Melbourne Mercer Global Pension Index (MMGPI) reveals how countries are doing to balance the twin goals of delivering financial security for their retirees that is both adequate for the individual and sustainable for the economy.

Measuring 34 pension systems, the index shows that the Netherlands and Denmark (with scores of 80.3 and 80.2 respectively) both offer A-Grade world class retirement income systems with good benefits. However, common across all results was the growing tension between adequacy and sustainability.

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The Index uses three sub-indices—adequacy, sustainability and integrity—to measure each retirement income system against more than 40 indicators. This year, the U.S. scored a 58.8 overall, up from 57.8 in 2017. For each sub-index, the U.S. scored 59.1, 57.4 and 60.2, respectively.

According to the full report, the adequacy sub-index considers the benefits provided to the poor and the average-income earner as well as several design features and characteristics which enhance the efficacy of the overall retirement income system. The net household saving rate, the level of household debt and the home ownership rate are also included, because non-pension savings represent an important source of financial security during retirement.

The sustainability sub-index considers a number of indicators which influence the long-term sustainability of current retirement income systems. These include factors such as the economic importance of the private pension system, its level of funding, the length of expected retirement both now and in the future, the labor force participation rate of the older population, the current level of government debt and the level of real economic growth.

The integrity sub-index considers three broad areas of the pension system, namely regulation and governance; protection and communication for members; and costs. This sub-index asks a range of questions about the requirements that apply to the funded pension plans which normally exist in the private sector. Well-operated and successful private-sector plans are critical because without them the government becomes the only provider, which is not a desirable or sustainable long-term outcome.

A sub-report about the U.S. retirement system says the slight increase in the U.S.’s score was due to a number of small changes in the adequacy sub-index. It suggests the overall index value could be increased by:

  • raising the minimum pension for low-income pensioners;
  • adjusting the level of mandatory contributions to increase the net replacement for median-income earners;
  • improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement;
  • reducing pre-retirement leakage by further limiting the access to funds before retirement;
  • introducing a requirement that part of the retirement benefit must be taken as an income stream;
  • increasing the funding level of the Social Security program;
  • raising the state pension age and the minimum access age to receive benefits from private pension plans;
  • providing incentives to delay retirement and increase labor force participation at older ages; and
  • providing access to retirement plans on an institutional group basis for workers who don’t have access to an employer sponsored plan.

“Ageing populations, high sovereign debt levels in some countries and the global competition to lower taxes constrain the ability of some jurisdictions to improve retirement income security. With a decade of unique data, the MMGPI and associated research can provide valuable global comparative insights to planners and policymakers on the way forward,” says Professor Deep Kapur, director of Australian Centre for Financial Studies.

Advisers Optimistic About Future Prospects

They are also offering a broader range of products, a survey by LIMRA and EY found.

Thanks to significant practice growth during the last few years, advisers feel empowered and optimistic about their future prospects, according to a new report, “Harnessing Growth: The LIMRA-EY Experienced Financial Advisor Study,” based on an online survey of nearly 1,500 advisers.

Eighty percent say that they have experienced significant gains in gross income in the past few years. While many said the growth was due to market gains, 50% said it was due to growth in the number of clients they serve. As a whole, advisers say their client base grew 22% in the past two years.

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This growth has also increased advisers’ expectations for service and support from insurers and other ecosystem partners.

The changing business mix—i.e. investment products, life insurance, annuities, advisory-related fees and other insurance products—means more types of practices now offer a broader range of products and services and compete more intensely for similar customers.

Nearly 80% of advisers also see the use of digital tools as essential for marketing, prospecting and client communications. Today, 43% of advisers use social media to prospect for new clients. Fifty percent plan to increase their use of texting, virtual meetings and social media for prospecting and client engagement. Furthermore, they expect their providers to interact with them via digital channels.

More advisory practices have turned to teaming and other practice support models to keep up with complex customer needs. To this end, they have entered into formal or informal arrangements with practice support professionals, such as product specialists, legal and tax professionals and wholesalers. More than 40% report that they are part of a formal teaming arrangement with fellow sales professionals within or outside of their agency or firm.

Seventy percent of advisers also expect that fiduciary requirements will drive up compliance costs and impact the products they sell. Eighty-six percent expect compliance requirements will increase.

They also expect investment firms and insurers to offer innovative products and best-in-class service and support, to help them grow their practices. This offers an opportunity for carriers and other financial service firms to differentiate in an increasingly commoditized environment. Organizations must commit to a strategy that extends their value proposition beyond product offerings and solidifies relationships with the highest value advisers.

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