Rethinking Retirement: Lessons from Global Reforms for a Sustainable Future

Retiring with dignity is a global need. No matter where you’re from or where you work, preparing for a financially secure retirement is a priority for everyone. Recognizing that reality, countries around the world are reforming their retirement systems to adapt to changes impacting retirement security. 

Increased longevity, lower birth rates, and economic pressures have impacted retirement worldwide, resulting in various reforms enacted in different countries, all of which lead to new opportunities for workers and retirees. The TIAA Institute recently published a comparative report offering insights into how seven nations are approaching and addressing these challenges. 

The Longevity Challenge

Across the world, life expectancy continues to rise. Many people are now looking at 20 or more years in retirement, far more than the decade that was expected 50 years ago. While increased longevity is encouraging news, it brings new challenges, like saving enough to live comfortably for decades in retirement.

In addition, even as people are living longer, birth rates are declining. This creates challenges for retirement systems that rely on having enough workers to support a growing number of retirees. For many countries, birth rates aren’t high enough to sustain traditional “pay as you go” retirement systems, placing millions of current and future retirees at risk of not having enough to live on. 

The Shift in Retirement Savings Responsibilities

Another factor at play is how the structure of retirement systems is changing, placing more responsibility on individuals to manage their own retirement savings. Historically, many workers were covered by defined benefit (DB) plans. These plans, funded and maintained by employers, provided workers with the promise of lifetime income in retirement. Today, defined contribution (DC) plans, like 401(k) and 403(b) plans, are more common. These plans place significant responsibility on workers to determine how much to contribute, how to allocate investments, and how to take retirement income. 

The shift from DB to DC systems is global and was driven by many factors, including the longevity and low birth rates mentioned earlier. For many countries, the structure of labor markets has transformed over the past 50 years, with the average worker today changing jobs eight times over their working life. However, DB plans work best for people who stay within a single plan over their career. In addition, the dynamic structure of innovation is generating new industries in which a worker can be completely self-employed or survive off “gig work” rather than a single full-time career. 

Innovative Global Solutions

A main finding from the country comparisons is how effective mandatory coverage and enrollment can be. In countries like Australia, Sweden, Singapore, and the Netherlands, employers must provide a retirement plan, which enhances the viability of the retirement system. In countries like the USA and Canada where workplace plans are voluntary for employers and employees, participation rates are far lower, reducing the viability of the retirement system. 

The UK has successfully pioneered a model in which employers are required to offer a plan, but employees may opt out. However, once enrolled automatically, employees are much less likely to drop. This is likely due to the “psychological endorsement effect” – where the default option guides an individual’s decisions. Research shows that with automatic enrollment, even if participants can opt-out, they’re far more likely to save for retirement than if they have to proactively choose to save. 

Another reform that stands out is Singapore’s introduction of a financial literacy test and asset minimum for those who want to manage their own investments. Many workers may lack the skills to successfully manage an investment portfolio or savings withdrawal strategy. Including an educational component with plan design can help to ensure workers understand and appropriately consider their income and retirement payout options. Simple prompts, like asking workers to imagine their retirement needs and priorities, can help them align their future vision with a savings plan that meets their needs. 

Developing a Template for the Future

At TIAA, we believe every worker in America has the right to save for and achieve a financially secure retirement. This can be achieved by providing workers with universal access to employment-based retirement plans that include a menu of low-cost investment options during their working lives and access to lifetime income options in retirement. Workers should have access to education, advice and clear information that helps them make informed choices to reach their retirement goals. We believe a new public/private partnership is needed to reform the existing system in a way that is adequate, sustainable, and equitable. The result would be retirement plan designs that incorporate the best elements of DB and DC plans in a new hybrid retirement system. 

To work toward a sustainable retirement future, we offer the following recommendations for policymakers, retirement industry professionals, and employers: 

• Universal coverage that automatically enrolls all workers into a retirement plan.
• A standardized low-cost menu of investment options, including a target-date asset allocation mix that includes a role for guaranteed income.
• A well-designed menu of income options in retirement, including options for lifetime income.
• Easy-to-understand guidance and advice with a focus on generating a level of retirement income that allows all Americans to have a dignified retirement.

I’m passionate about retirement and the importance of preparing for retirement. It’s natural to grow and change as a society and our systems must change with us. It’s not just about you or me and our specific futures, but the collective futures of the workers of today and tomorrow. Studying global practices can help us adopt and amend the best ones to fit our unique needs as a workforce.

This material is prepared by and represents the views of the author and does not necessarily represent the views of TIAA, its affiliates, or other TIAA staff. These views are presented for informational purposes only and may change in response to changing economic and market conditions. Investment decisions should be made based on an investor's objectives and circumstances and in consultation with his or her advisors. Certain products and services may not be available to all entities or persons. 

©2024 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, New York, NY