Once upon a time, you were either a grasshopper or an ant – you either jumped through all your earnings to enjoy or you diligently saved every penny for a comfortable retirement.
Today, we face the pressure to be both. On the one hand, credit cards and loans let us live the good life even before we can afford it. On the other, we must put aside more money for retirement than did generations before us.
This, according to Brigitte Miksa, the head of Allianz International Pensions, is one of the key takeaways from the latest Allianz Pension Sustainability Index (PSI).
The sustainability of pensions systems worldwide has been steadily improving over the past decade, thanks to reforms by governments.
“While this is good news for society, it has consequences for individuals,” says Miksa. “A sustainable system implies that people continue to get benefits when they retire, but the changes made to ensure these systems remain sustainable mean the benefits will be less – maybe even far less – than what today’s retirees get.”
As populations in many countries age, the trend is toward placing greater responsibility on individuals to contribute more to their own retirement security. But a conflicting message comes from society. “The ‘live-for-today’ message from peers drowns out the urgency of financially securing your future,” Miksa says.
The latest PSI shows the most sustainable pension systems for the long run are in Australia, Denmark, Sweden, the Netherlands, Norway and New Zealand. But sustainability does not reflect “adequacy”, the amount an individual needs to meet basic requirements. On this parameter, the Netherlands, Denmark, Norway and Switzerland have the highest ranking.
CHANGING WORK PATTERNS
Just a third of workers usually concerns itself with pension issues before the age of 50-55, when retirement looms, Miksa says.
“I don’t expect the millennials (those born in the 1980s and 1990s) to be different. They - like previous generations - will find that if they don’t have a hand in the game before then, it will be difficult to ensure a comfortable retirement.”
With freelancing and self-employment on the rise, we’re headed towards a more ‘casualized’ workforce. A recent survey suggested that in 2015, about a third of all workers in the United States – about 54 million people – had engaged in some freelancing over the past year.
New technologies allow a fast match between jobs and independent contractors willing to do them. But such an informal work culture has long-term implications.
Social security schemes are designed around formal employment. Workers need to register and pay their share, which determines their benefits. Independent professionals are usually not covered under these systems and fall through the cracks of state and occupational pension schemes. This puts the onus of retirement planning on the individual.
However, millennials have more opportunities today than other generations such as baby boomers did.
“Previous generations were bound by the rigid structures of statutory pensions and occupational pensions,” Miksa notes. “Millennials have far greater choices to decide where and when they want to invest for better returns.”