See what’s at stake when it comes to pension costs

Growing life expectancy and its impact on the insurance market will be one of the main subjects of debate at FIDES Rio 2023

Increasing lifespans may be seen as one of humanity’s greatest achievements. However, although this is excellent news, it also requires constant attention. The fact that we are living longer has impacts in many areas of life, such as the economy and pension systems around the world.

In this context, the 38th FIDES Western Hemisphere Insurance Conference – whichwilltake place from September 24 to 26, 2023, in Rio de Janeiro – will consider future paths, trends and opportunities for the insurance market in Latin America, the United States and Spain. “Growing life expectancy: future vision and market repercussions” will be one of the broad topics explored during this international event. Business leaders, experts and public officials will debate this and other key subjects for the insurance industry.

Pension

A recent study released by consulting firm Mercer and the CFA Institute leaves no doubt that there are huge challenges in terms of securing supplementary retirement income.

The study ranks the world’s best pension systems, looks at conversions from defined benefit to defined contribution plans and appraises the risks that people face when this migration happens. All over the world, this change is seen as the best way to ensure the sustainability of supplementary pension schemes.

Financial responsibility

The 14th Mercer CFA Institute Global Pension Index (MCGPI) report was released in 2022 and it lists the best retirement systems. The list is led by Iceland, followed by the Netherlands and Denmark. The analysis carried out highlights the deficiencies of each model and measures that could help improve sustainability.

In all, 44 global pension systems were evaluated, representing 65% of the world’s population. The main conclusion is that individuals will have to assume greater financial responsibility, especially given growing economic uncertainties. Identified risk factors include high inflation, high interest rates and low economic growth, creating a more complex and volatile framework for the management of pension plans.  

New products and strategies

Mercer says that new products and financial strategies will be needed to deliver adequate returns to pensioners, not least because global interest rates have gone up a lot and this has had direct impacts on workers’ cost of living and the income earned by retirees.

“As employers continue to move away from the financial security offered by defined benefit plans, individuals are bearing the risks and opportunities before and after retirement. Unlike defined benefit plans, whereby people receive regular annuity payments upon retirement, defined contribution plans typically provide individuals with a lump sum benefit at retirement. In addition, many governments are considering reducing their level of financial support during retirement to ensure their long-term financial sustainability,” the study says.