Pension systems worldwide faced a “stress test” during the epidemic – what you might call the “pension epidemic paradox.”
On the one hand, there was pressure to allow access to pension savings as an emergency aid during the severe economic downturn. This was understandable, since for many people pension savings were their biggest financial asset. But, in some countries, this has led to unprecedented access beyond the immediate urgent need and has put the pension savings system at risk. The most notable case was the pension reform Trailblazer Chile. Between 2020 and 2021, a whopping $ 50 billion – about 25 percent of pension savings – representing about one-fifth of Chile’s GDP – was withdrawn from the system.
With the Sustainable Development Goals and the challenge of financing the Paris Agreement still facing the world, our pension systems – such as our architectural heritage – deserve to be preserved.
On the other hand, the long-term internal capital that represents our pension savings was used to support short-term emergency measures. Dutch and other European pension funds, for example, bought “COVID-bonds” issued by the Nordic Investment Bank. The CDPQ, which provides pension funding to Quebec, joins efforts to support local initiatives affected by the crisis.
And these funds are needed to support long-term structural needs such as transformation into a low-carbon economy. Prior to the COVID-19 crisis, it was estimated that an estimated $ 2.5 trillion would be needed for developing economies to achieve a low carbon change and tackle the climate crisis. The Organization for Economic Co-operation and Development estimates that after the epidemic, it has risen to $ 4.2 trillion. In that sense, multilateral development banks have less than 10 percent of their annual lending capacity. The enduring capital of long-term investors around the world – especially in pension and insurance funds – will be essential to finance this transformation.
Pillars in the pagoda
The epidemic has also spread and created a naked trend in the global workforce, which in turn reflects the ongoing demographic changes that our traditional pension systems are struggling to adapt to. Instead of the traditional framework of one time in our life of education, going to work and then retiring at a certain age, 100 years of life is becoming increasingly normal and people are adapting and adopting a “multi-stage” approach. Life involves a period of employment, a period of self-employment, a return to education and training, and finally a combination of activities in old age প্রদান paying or otherwise. For people working in developing economies, this may sound familiar. It reflects the less-traditional labor market structure that is typical in poorer countries.
Even in advanced economies, pension systems will have to adapt to adapt to these new structures, becoming increasingly more flexible to reflect the more fluid living standards. Instead of the “pillar” concept of the pension system promoted by the World Bank since the 1990s, we need to think of pension systems as more of a “pagoda”..“Just as pagodas are supported by the Shinbashira column at their center, a strong core of social security should be at the center of any well-planned pension system that protects our lifelong needs. It can be designed in a variety of ways – from” universal “pensions to subsidized Up to contributions – and the redistribution of any well-planned pension system can be covered by the general tax to serve the basic insurance function. .
Like a strong but flexible pagoda that adapts to changing conditions, these storage layers can be designed to adapt to our changing lifestyle needs. In contrast to our current somewhat rigid pillars that are often tied to employment – qualification, quantity and duration are defined with specific parameters – they will be designed to be more flexible.
More flexibility in the “path” of pension savings may combine contributions with consumption rather than income, while employers imitate the simplicity, regularity and “obligation” elements of contributions despite pay-and-allowances. Flexibility in contributions can mean saving different amounts through our lives while we have more power to do so, mimicking the “save more tomorrow” strategy now used across many corporate pension funds in the United States. Incentives can be provided for people to save for pensions after taking a break for training or family care.
Using new technology opens the way to use insights from behavioral economics. These include innovative processes such as “Top Up” that help us save automatically, redirecting excess amounts from our bank accounts or linking them to regular events, such as functions offered by companies like Acorn and Capital. Even concepts like “savings gamification” are being tested, for example, by the Long Game team.
Exit flexibility means allowing controlled access to our savings under certain circumstances. The idea of a “sidecar” account – a combination of a short-term savings account with long-term leverage savings – is proving successful, among others, through the NEST scheme in the UK. Credit scores are another possible way to provide access to low-cost loans, including pension savings, as well as to encourage balance.
Adding Eastern flexibility to Western power
The basic purpose of our pension system প্রথম first formally “avoiding the aging crisis” in a World Bank report that raised the global question of traditional pensions in the early 1990’s — still remains the same: Helps. What has changed is the nature of our lives and livelihoods. Like pagodas, our pension systems will continue to come in a variety of shapes and sizes – with narrow or thick cores, and more or less.
We still have much to learn from the ancient Greeks. Our pension pillars still have a lot of power – the most significant benefits that come from accumulated savings through employment, which keeps costs low and saves us from our own myopia by saving both reasonably simple and automated savings. We should combine this wisdom with education from Asian culture – the flexibility that pagodas represent. With the Sustainable Development Goals and the challenge of financing the Paris Agreement still facing the world, our pension systems – such as our architectural heritage – deserve to be preserved. To do this, time-tested Corinthian columns that inspire multi-column pension systems need to be blended with Asian practicality to preserve both discipline and sustainability.