Individuals around the world are becoming increasingly responsible for their retirement savings and investment decisions. To assist them in this critical challenge, EDHEC professor Lionel Martellini recommends the creation of a public agency.
A major crisis is threatening the sustainability of pension systems across the globe. The combination of increased life expectancy, downward trend in birth rates and an unfavourable economic climate, marked by low growth and high unemployment, implies a limited capacity for national solidarity, the first pillar of pension systems, to cover the pensions of future generations.
In parallel, the second pillar of pension systems, which is expected to provide additional replacement income for retirees via public or private occupational pensions, is also weakening. Overall, a massive shift from defined-benefit pension schemes to defined-contribution pension schemes is taking place across the world, implying a transfer of retirement risks from corporations to individuals.
With the need to supplement public and private retirement benefits via voluntary contributions, the so-called third pillar of pension systems, individuals are becoming more and more responsible for their own retirement savings and investment decisions. This global trend poses substantial challenges to individuals, who often lack the expertise required to make such complex financial decisions.
We cannot encourage the development of long-term savings habits of individuals and households without first making them aware of the benefits of doing so and supporting them in their investment decisions.
The Pension Crisis and Flexicure Retirement Solutions : In the context of the pensions crisis, the investment industry is facing an ever-greater responsibility to provide suitable retirement solutions. Unfortunately, currently available investment products distributed by asset managers or insurance companies hardly provide a satisfying answer to investors’ and households’ needs in retirement.
Given this context, it would be particularly appropriate to consider the creation of a public financial health agency, based on the model of public health services. While physical health is naturally the primary concern of pensioners, their financial health is a close second.
Why not launch a major campaign to raise awareness among the general public? This would involve reworking slogans so strongly embedded in our minds that they have become true reflexes in terms of healthy living. Hence the famous notion of "Move Regularly and Eat Healthily" would become a "Contribute Regularly and Invest Healthily". Similarly, the variations of the "Eat healthily", which include "Eat at least 5 fruits and vegetables a day" and "Avoid eating food that contains excessive levels of fat, sugar and salt", could become "Invest in at least 5 different products and asset classes" and "Avoid investment products that contain excessive fees, risk and levels of complexity".
Financial literacy courses
Beyond a necessary awareness campaign to be carried out by the public authorities, there is an educational duty that falls to many private and institutional players; the first of all being school. It is time for financial literacy to be incorporated into the national curriculum, in the same way that sex education courses have been usefully included as part of the major civic education programme. Being a fully engaged and integrated citizen in society effectively requires one to make informed financial decisions, be it in terms of mortgage decisions or investment decisions.
It is also a major challenge for universities, which must be called upon to play a real role in civic education by putting their knowledge at the service of the community through, for example, the organisation of conferences or training programmes accessible to the general public.
It is also a real challenge for companies, in the spirit of good corporate citizenship, where it is their duty to help their employees prepare for retirement as effectively as possible, and also obviously for financial intermediaries for whom the 'education' is still too focused on promoting the product of the moment.
In the absence of an ambitious vision of the challenges of financial literacy, it is difficult to be optimistic about the ability of individuals to adequately prepare for retirement Salvation in this matter, as with so many others, will be achieved through education, which remains the surest possible vehicle for individual and collective intelligence.