Recommended Reading on the Retirement Crisis: Is Mandatory Savings the Way Forward?

Mandatory retirement savings accounts is a hot topic, as evidenced by buzz around Meir Statman’s recent article in the Financial Analysts Journal, as well as the number of recent articles and blog posts tackling the issue of pension security. While a number of people are calling for mandatory retirement savings for employees in the United States, there is vigorous debate as to whether this is the way forward.

“We’ve created tax incentives to get people to participate in their 401(k), we’ve reduced the number of options in a 401(k), realizing that too much choice was overwhelming. . . . Despite all of this, we still don’t have enough people saving enough money for their retirement,” said Chris Farrell, economics editor of Marketplace Money, on a recent Marketplace Morning Report. The solution? What Farrell says is a “toxic” word in Washington, DC: mandatory savings.

Should saving for retirement be mandatory in the United States in the sense that individuals (through their employers) are forced to make contributions to a private retirement plan, as they are in Australia? (Australia’s retirement system has two key components: a means-tested government benefit and a mandatory savings account financed by employers.) What are some of the concerns over mandatory retirement savings plans? Should people, on principle, be free to choose what they do with their money? Or should the government be “nudging” workers who are not disciplined about saving with a all-out “shove”?

To explore some of the issues surrounding the crisis retirement funding globally, CFA Institute is hosting a Future of Finance forum on whether retirement savings should be mandatory for employees. The discussion will take place on this blog from 9–11 October 2013 and our distinguished panelists include Meir Statman; Teresa Ghilarducci; Stuart Leckie; Richard Brandweiner, CFA; and Jacco Heemskerk, CFA.

For some background reading, here are some articles, research reports, and blog posts:

• In a recent article in Financial Analysts Journal, Meir Statman makes the case for a mandatory US retirement savings program. And he explains his ideas in this podcast.
• In an interview with Pensions & Investments, Teresa Ghilarducci discusses her views on pension security and reform. “Like the advice about eating well — ‘eat less, mostly plants’ — my advice for comprehensive retirement income security policy is, ‘mandate pensions, mostly annuities,’” she says.
• We recently asked the readers of CFA Institute Financial NewsBrief to consider four options for retirement saving, ranging from a mandatory, government-imposed solution to do-it-yourself saving. A striking majority of the 975 respondents in the global poll — 45% — chose “mandatory, whereby individuals are forced to save into private retirement plans via their employer.” Respondents in the Asia-Pacific region also overwhelmingly voted for mandatory savings into private plans — with that option garnering 51% of the vote.
• “The Global Quest to Save Retirement” and an infographic, “The Global Retirement Dilemma.” (Bloomberg)
• “In Australia, Retirement Saving Done Right” (Businessweek)
• “To Solve the US Retirement Crisis, Look to Australia” (Forbes)
• “Australia’s Retirement System: Strengths, Weaknesses, and Reforms” (Center for Retirement Research at Boston College)
• “Dynamics of the Australian Superannuation System: The Next 20 Years 2013–2033” (Deloitte, PDF)
• “Pension Lessons from Down Under: Australians Could Teach Americans a Thing or Two about the Benefits of Reform” (The Wall Street Journal, paid subscription)
• “Australia’s ‘DIY’ Pension Funds Ring Regulatory Alarm Bells” (Reuters)
• “Mandatory Savings Accounts Are Coming Your Way” (Time)
• “No Country for Old Age” (The New York Times)
• Tadas Viskanta, in a post on his blog Abnormal Returns, asks: Does the US need a mandatory retirement savings program?
• “Shortage of Guilders for the Next Generation” is one article of many in the September issue of European Pensions. (PDF)
• “China’s Brewing Pension Crisis” (Bloomberg Businessweek)
• China’s Long March to Retirement Reform: The Graying of the Middle Kingdom Revisited (CSIS and Prudential, PDF of 2009 report)
• Report: Pensions at a Glance — Asia/Pacific Edition 2011 (OECD)
• “How to Tackle the Pension Crisis” (The Financial Times)
• “California Tries to Mandate Retirement Savings for Private Workers” (Fox News)
• Addressing America’s Retirement Needs: Longevity Challenge Requires Action (BlackRock, PDF)
• June 2013 Report: The Retirement Savings Crisis: Is it Worse Than We Think? (NIRS, PDF)
• In a recent NIRS Issue Brief, “Lessons for Private Sector Retirement Security from Australia, Canada, and the Netherlands,” the authors point out that in drawing lessons from abroad, “it’s important to understand how the retirement system of each country functions in the context of a particular set of national institutions, policies, and cultural norms.” (NIRS, PDF)

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.