PensionReforms' summary and comments
When people suggest that fellow citizens aren't saving or aren't saving enough, the evidence is mostly based on participation rates in formal retirement saving schemes.  So it is with this report.

The report summarises the now well-known story about ageing populations, shorter working lives (from higher starting ages) and the twin pressures of higher pension and healthcare costs.  Countries (including the US) are cutting pension promises and, in the US, "only 46 percent of American workers in 2007 expected to have sufficient funds to live comfortably in retirement, compared with 59 percent five years earlier."

As well, countries are installing saving systems that either require or help workers to make their own provision for retirement.  The report looks at Australia, Chile, New Zealand and the United Kingdom to see whether there were lessons for the US.  Each has a different approach:
-   Australia has a compulsory Tier 2 scheme that requires employers to contribute 9% to a scheme of the employees' choosing.  There is much potential choice both of provider and investment strategy.  Though not directly linked to the tax-financed Tier 1 universal pension, there is an indirect link because Tier 1 is income and asset-tested.

-   Chile has the archetypal, mandatory individual retirement saving accounts - heavily regulated and directly linked to Tier 1.

-   New Zealand has just introduced an auto-enrolment, subsidised, opt out national Tier 3 savings scheme ("KiwiSaver") without any direct connection to its relatively generous universal Tier 1 scheme.

-   The United Kingdom will graft an equivalent to New Zealand's KiwiSaver on to an already complex, heavily subsidised Tiers 1, 2 and 3.

The report summarises the key features of each country's arrangements, including some of the difficulties they face.

The report turns to the US reporting, first, the Social Security system's impending "insolvency".  It then points out the relatively low level of participation in formal retirement saving schemes:
"The United States simply cannot afford to have about half of its workforce unable to take advantage of a simple, low-cost system of retirement saving.  Most workers cannot afford to live in retirement on just Social Security benefits, and that program's coming fiscal problems make it very unlikely that benefits will increase.  If younger workers are to have the same retirement security as their parents and grandparents, they must save for retirement from the time they first enter the workforce until they reach retirement age."

The report does not advocate adopting any of the four countries' models but "... each of the four national systems offers positive and negative lessons that are relevant to U.S. policymakers.  A U.S. system needs to reflect American political and financial realities, but it can adopt certain components that have worked elsewhere."

The report prefers automatic enrolment of the kind used in New Zealand and that will start in the UK in 2012:
"Automatic enrollment seems to offer a better solution for the United States than does a mandatory system.  If it proves not to greatly increase enrollment over time or if certain ethnic, gender, or income groups end up being underserved, the United States could consider moving to a mandatory system."

But the report does not much like centralised control:
"Similarly, a decentralized system combined with some form of on-line component that could match employers with a financial-services provider interested in their business may be more efficient and faster to implement.  However, if some segments of the market are underserved and cannot get access to a cost-effective retirement savings product, then some more formal and centralized system of providing accounts will have to be created. Somewhat similar problems resulted in Australia's new clearinghouse."

There is a danger with any government intervention of the scale illustrated in the four countries reviewed that existing employer-related schemes might be damaged.  The report thinks that would be a retrograde step.

"Companies that offer their employees 401(k)-type plans or traditional defined benefit pension plans should not be required to replace them with a new system.  Instead, any additional system should apply only to companies that do not offer any type of retirement savings plan or pension and to the self-employed.  That is not to say that 401(k)-type plans are perfect.  The results of the current economic downturn show otherwise. However, nothing to date indicates that those workers would be better off in some new plan."

The report concludes:
"As U.S. policymakers seek to increase the proportion of workers who save for retirement, they can learn a great deal from exploring overseas systems."

PensionReforms thinks the report proceeds from data that may indicate there is something wrong with what US citizens are doing (not saving enough for retirement) but may not.  Here, for example are two alternative views on the US here and here.  If the existence of the problem itself is in doubt, it seems difficult to see any lessons that the US can gain from the four countries covered.  In the case of New Zealand, the report itself notes local research suggesting, at the worst that somewhere between one fifth and one third of New Zealanders aren't saving 'enough' for retirement.  That includes rich citizens who won't be able to match current incomes and don't need to.  So, what KiwiSaver was intended to achieve is a question the report left unasked.  Somewhere between 67% and 80% of New Zealanders seemingly don't need the 'help' that KiwiSaver intends to offer.

In PensionReforms' view, there is no substitute for evidence at an individual level of what citizens own and owe; what they are setting aside in all the different ways they might be doing that (not just in pension saving schemes); when they intend to retire and what their retirement income aspirations might be.  That can all be used to test aspirations against likely outcomes.  Only then might it be possible to say whether someone is saving 'enough'.  The only evidence of this kind that PensionReforms has found for the UK is here.  Some data is available on these issues in Australia, but not much - see here.

PensionReforms thinks the US needs much better information on what its citizens are really doing before it embarks on anything as radical as illustrated in the four countries analysed in this report.  The US does not need to repeat their mistakes.  (File size 464 KB; 36 pp) 319