Practical analysis for investment professionals
08 October 2013

Should Retirement Savings Be Mandatory? (Forum)

In the United States, and in many other countries, only a fraction of households have saved enough to look forward to a comfortable retirement. For those without a sizable nest egg, the so-called “golden years” are a grim prospect. Not surprisingly, governments around the globe are grappling with how their citizens will afford retirement.

In a report released this week, David Knox, a senior partner at Mercer, put it this way: “Pension systems around the world, whether they be social security systems or private sector arrangements, are now under more pressure than ever before. Rising life expectancies, increased government debt in many countries, uncertain economic conditions and a global shift to defined contribution (DC) plans mean that we are moving to a new environment.”

What to do to shore up retirement security, especially in the United States, which ranked 11th out of 20 countries in this year’s Melbourne Mercer Global Pension Index?

Earlier this year, Larry Fink, chief executive of BlackRock (BLK), called for “a comprehensive solution to retirement savings that includes some form of mandatory retirement savings, similar to Australia’s successful superannuation system or the new pension requirements in the UK.”

Could this be the way forward for the United States? Other countries?

There are many issues to consider. In places where there is a component of mandatory retirement savings, how well has it worked? Is “nudging” effective? What about fees, standardizing risk disclosure, improving financial advice, and strengthening investment defaults?

To help empower investors and financial advisers to make better decisions — a key aim of the Future of Finance project at CFA Institute — we’ve assembled a global panel of experts to discuss the issue of mandatory savings and retirement security. The participants are well-versed on the pros and cons of the pensions systems in Australia, China, the Netherlands and the United States.

Our distinguished panelists include Meir Statman; Teresa Ghilarducci; Stuart Leckie; Richard Brandweiner, CFA; and Jacco Heemskerk, CFA.

The discussion will run from 9–11 October 2013. If you’d like to share your perspective or pose a question for our panelists, scroll to the bottom of this post and leave us a comment. Or send a tweet to: @laurenfosternyc. We’ll do our best to incorporate your thoughts into the discussion. For more information on this topic, check out our recommended reading list.




The Panel

Richard Brandweiner, CFA (@ims_ppt)

Richard Brandweiner, CFARichard Brandweiner, CFA, is director of investment services at First State Super, one of Australia’s largest superannuation funds with more than $36 billion in funds under management. Brandweiner is president of the CFA Society of Sydney. He holds a bachelor of economics degree from University of New South Wales.


Teresa Ghilarducci (@tghilarducci)

Teresa Ghilarducci Teresa Ghilarducci is a labor economist and nationally-recognized expert in retirement security and is the Irene and Bernard L. Schwartz Chair of Economic Policy Analysis and director of the Schwartz Center for Economic Policy Analysis in the Department of Economics at The New School’s New School for Social Research. Her most recent book — When I’m Sixty Four: The Plot Against Pensions and the Plan to Save Them — investigates the loss of pensions for older Americans and proposes a comprehensive system of reform. Her previous books include Labor’s Capital: The Economics and Politics of Private Pensions (winner of an Association of American Publishers award in 1992) and Portable Pension Plans for Casual Labor Markets. Ghilarducci is on the executive board member of the Economic Policy Institute, a member of the Retirement Security Advisory Board for the Government Accountability Office, and a court-appointed trustees for the retiree health care trusts for UAW retirees of GM, Ford, and Chrysler, and USW retirees of Goodyear Tire.


Jacco Heemskerk, CFA (@JaccoHeemskerk)

Jacco Heemskerk, CFAJacco Heemskerk is managing director of RBS Nederlands Pension Fund in the Netherlands. He is also the chairman of the Works Council for RBS in the Netherlands, a supervisory board member of the regional development company omU (NV Ontwikkelingsmaatschappij Utrecht), and vice president of the CFA Society Netherlands. Jacco graduated from the Erasmus University in Rotterdam, holds a master’s degree in economics, and has been a CFA charterholder since 2006.


Stuart Leckie (@LeckieStuart)

Stuart LeckieStuart Leckie, OBE, is the chairman of Stirling Finance, a Hong Kong–based pensions and investments advisor. Leckie is the coauthor of Pension Funds in China, a book that provides a comprehensive and critical look at China’s pension reform journey from 1949 to 2004, and also authored Investment Funds in China. He advised the Hong Kong Government on the establishment of the Mandatory Provident Fund, had served on various committees in Hong Kong’s Securities and Futures Commission and was a director of Exchange Fund Investment Limited which launched the very successful Tracker Fund. He currently advises on investments and pensions in Hong Kong and mainland China; he has advised the Chinese Government on pensions reform. He is also an independent non-executive director at Treasury China Trust.


Meir Statman (@meirstatman)

Meir StatmanMeir Statman is the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University. His research focuses on behavioral finance. He attempts to understand how investors and managers make financial decisions and how these decisions are reflected in financial markets. Meir’s book, What Investors Really Want, has recently been published by McGraw-Hill. Meir’s research has been published in the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Journal of Financial and Quantitative Analysis, the Financial Analysts Journal, and many other journals. Meir received his Ph.D. from Columbia University and his B.A. and M.B.A. from the Hebrew University of Jerusalem.


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.

About the Author(s)
Lauren Foster

Lauren Foster is a content director on the professional learning team at CFA Institute and host of the Take 15 Podcast. She is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Lauren spent nearly a decade on staff at the Financial Times as a reporter and editor based in the New York bureau, followed by freelance writing for Barron’s and the FT. Lauren holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

10 thoughts on “Should Retirement Savings Be Mandatory? (Forum)”

  1. Jennifer Curry says:

    It seems to me that you can’t address the issue of the disparity in retirement savings without discussing the growing income inequality: http://www.businessinsider.com/how-to-fix-the-economy-in-one-simple-chart-2012-8. Is part of the problem that people simply can’t afford to save for retirement? Would mandatory retirement savings place an undue burden on low-wage workers?

    1. It would also be interesting to know how do those who don’t have enough retirement savings cope with the life-after-retirement.

  2. Dennis McLeavey says:

    I agree with Jennifer’s comment above. In a blog post on paternalism, I mentioned “Nudges may not be totally effective among the poor, but are shoves then the answer for retirement savings? Could it be that the retirement savings problem is as much a problem of income inequality factors as it is of the savings factors that Statman mentions (genetics, personality, and parental influence on an individual’s savings behavior)?”

  3. What I find interesting about this discussion is the notion that an agreement with the folks actually exists. Social Security’s “trust fund” has been ravaged by the government and filled with IOUs. That, in itself, would suggest that significant policies to privatize the benefit is essential today. At the same time, with the Federal Reserve and international cohorts geared to lowering risk free rates of return, running negative real interest rate policy, to reignite animal spirits we run the risk of pushing savers and retirement planners into speculative investment activities. The actuarial sciences, including discount rate assumptions in state pension plans, are failing because politicians treat assumptions as real money that can be spent. I would be interested in the comments by the discussants about how we build stable systems for responsible participants in the fog of such policy gobbledygook.

  4. Thank you all for your questions and comments. I will be posting them to the branch.com discussion shortly, but bear in mind the panelists are participating from various time zones so there may be a delay in seeing a response.

  5. I would also be interested in whether asset manager fees are constrained in any countries around the world. The average net margin for money managers has been consistently at or above 25% for decades. Scale of the firm does not result in lower asset management fees. So…if we require folks to choose money managers and invest, should we compel private asset managers to publish rates and margins on the activity so that generally uninformed investors can easily comparison shop?

  6. Jessie King says:

    I think the problem with a mandatory savings program (above and beyond Social Security, which leaves plenty of retirees below the poverty line) is that in reality, the vast majority of Americans are living paycheck to paycheck, and those of us which have some leeway have little concept of how US citizens *actually* live. I am lucky enough to be a physician, but was 35 years old with 3 kids before I became an attending physician and no longer lived paycheck to paycheck, so I was 35 years old before we actually started saving for retirement and we’re now desperately trying to make up for lost time (and I acknowledge some personal choices of having children before we could actually “afford” them as well).
    I have not fact checked, but this has been floating around the internet for awhile and says a lot about the bigger problem in our country, income equality: http://www.upworthy.com/9-out-of-10-americans-are-completely-wrong-about-this-mind-blowing-fact-2?g=4 We are now a society that requires at least 2 incomes just to keep our families afloat, but where the CEO of a large corporation makes, what? 100x? what the average employee makes. Retirement savings for my family, until very recently, was impossible and I suspect a good chunk of the U.S. population feels the same.

  7. I have questions for two of our panelists.

    For Jacco Heemskerk: How has the Netherlands been successful at cultivating an attitude of solidarity and risk sharing for its collectively run plans?

    Do you think it’s possible to cultivate a similar attitude in the United States, given the difference of scale (in terms of size and population) between the two countries?

    For Stuart Leckie: How has China been successful at getting such a large number of people to participate in a defined benefit pension system?

    Do you think that there is a chance that China’s plan participants could see their attitudes shift in the future, away from collective risk sharing and towards individual saving?

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