PensionReforms' summary and comments
"The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas." (from the Forum's web site).  This report has been prepared in collaboration with Mercer (an HR and pensions consultancy) and the OECD.

The report says it is looking at the financial implications of ageing societies from two new perspectives - first, the topic is not just about the cost of pensions but also about health costs.  Secondly, "...the report focuses on opportunities, whereas most previous ones have focused primarily on risks.

"Third, the report provides an overview of a broad set of practical solutions, ranging from the existing, but underappreciated, to the highly innovative.  The strategic options it presents are not drawn with broad brush strokes, but rather are explored with sufficient specificity to enable their potential to be meaningfully evaluated.  Ideas exist on how to tackle demographic change, but in pockets.  This report brings together the most promising solutions and shares them with decision-makers who can assess which ones best suit their particular contexts.  This report thereby challenges all stakeholders to collaborate in new ways and consider connections they have not considered before."

The report builds on an earlier "scenario-building exercise" that looked forward to 2030 and that is summarised in an appendix.  That led to the development of 50 strategic options that made three key requirements "clear":

 ". Effective multistakeholder collaboration
Effective collaboration among the key stakeholders - financial institutions, healthcare providers, employers, governments and citizens - is crucial to overcome challenges and seize opportunities.  The earlier scenarios report highlighted how different forms of collaboration may contribute to shaping the future.  This report further analyses how collaboration may, in various combinations, be fostered by aligning interests, enforced through rules and regulation, or stimulated by focusing on shared benefits and long-term objectives and reinforcing a sense of moral responsibility and leadership.

". Transformational change in thinking
The actions of individual stakeholders must be based on a shift in thinking towards incentive structures that reward long-term planning and societies that value and honour old age as a productive life phase.  This shift in thinking entails significant changes in the way that work, health and retirement are conceived, and can create new opportunities for growth as well as improving quality of life.  It will impact on the lives of the young as well as the old, because early intervention is necessary to achieve long-lasting effects.

". Integrated retirement and healthcare solutions
The longlist (sic) of 50 strategic options looked at possible solutions from the perspective of retirement, healthcare and hybrid solutions.  The findings indicate that hybrid solutions to address both the healthcare and retirement financing challenges are possible and, in fact, essential to better cater to ageing societies."

The report refines the "longlist" of 50 down to "11 strategic options".  They "...were chosen by a process of selection and consolidation based on four central criteria: potential effectiveness, level of innovation or exploration, robustness and suitability for multistakeholder collaboration.  They range across healthcare-focused, retirement-focused and hybrid solutions, and reflect six strategic dimensions."

The 11 options can be summarised as:
-   Older people should be expected to work until older ages.
-   Healthcare systems should be encouraging healthy living rather than just curing diseases.   Also, providers should be "paid for performance" to reduce "waste and inefficiency".  Medical tourism has potential.
-   Citizens need more financial literacy to make informed choices.
-   Individuals need more private savings because public pensions will reduce.
-   Better annuity options are needed, including "reverse mortgages".
-   The "microfinance" movement should extend to "microinsurance" and "micropensions" aimed at poorer households.
-   The investment performance of pension funds needs improving through better strategies, governance and regulation.

"While each strategic option could stand alone, their strength lies in their synergy and complementarity.  Their overarching themes make them relevant to readers in different countries regardless of their degree of economic development, structure of systems or funding mechanisms.  There is much potential for two-way learning between developed and emerging economies, which may yield other benefits such as strengthening the services sector, empowering consumers and nurturing the development of capital markets.  Each strategic option is presented with practical examples of potential action for each group of stakeholders, enabling decision-makers to assess which best fit their particular circumstances."

The report hopes that "...these options will open doors to new thinking about ageing and a new approach to creating a "silver society"."

PensionReforms notes that the report is liberally laced with management consultancy charts and messages - about "stakeholders", even "multistakeholders"; "scenario-building" a "sense of moral responsibility", "synergy and complementarity"; even "joined-up thinking".  There is talk of "paradigm shifting", "scenario analysis to underpin collaborative strategies" and other similar 'boosterisms'.

Generally, PensionReforms thinks the report does not really cover new ground.  None of the "strategic options" is new and the report traverses some ground lightly.  For example, while it is true that "some [public] policy makers regard early retirement as a solution to youth unemployment" there is some solid evidence (not mentioned in the report) that this strategy doesn't work (see here).  In this case, it seems to PensionReforms that the best approach for governments to adopt is to get out of the way and leave employers and individuals to decide what's best by (and for) themselves - not offered as an option in the report.

Again, the report states with respect to retirement saving that "the complexity of investment decisions is such that complementary regulations on investment choices and default options are critical."  The first part of the statement is certainly true in most countries but that is primarily caused by tax and other regulatory intervention.  The report proposes further intervention whereas clearing the regulatory playing fields may be more effective (not raised as an option).

When the report turns to retirement pensions it focuses on just formal arrangements (rather than all assets) and simplistic, international comparisons of income replacement rates with no analysis of an allegedly poor replacement rate of less than 60% of pre-retirement incomes for 12 of 30 OECD countries.  Even if that information were correct (and PensionReforms doubts it), it's not easy to see why an "average worker" needs to do anything about it. Other than the 60% being lower than 70%, it might have been nice to see discussion about current poverty levels amongst the old, even in the world's rich countries, and whether 70%, rather than 60%, would make a real difference to those.  PensionReforms suspects not.

PensionReforms was, however happy to see the following:
"The most effective safety nets are flat, universal old-age benefits which are paid to all residents. Their cost can be partly recovered and their progressivity further enhanced via tax systems and other forms of claw back."  But, seemingly only for "low income" countries.

The problem though is that a pension "clawed back" is no longer the Universal Pension that PensionReforms prefers.  The report noted that Botswana, Namibia, Mauritius and Nepal as low income countries have "universal pensions".  PensionReforms notes that to those should be added Kiribati, Samoa, Brunei, Kosovo and Bolivia.  The report then suggests that universal pensions be confined to poor countries without explaining why.  It should have looked at the success of New Zealand's Universal Pension.

The report also criticised tax incentives for retirement saving:
"Financial incentives to save for retirement may benefit mainly higher-income households, while fuelling a perception that public pension safety nets are too costly."

PensionReforms agrees with the first part of that but wonders why the report didn't suggest getting rid of incentives altogether rather than the recommended, presumably additional, "savings incentives for lower-income households".  Clearing the tax playing field would have the incidental effect of removing the need for much of the complexity that the report noted makes investment decisions so difficult.  Also, PensionReforms doesn't understand the apparent connection between tax incentives and the cost of public safety nets.  Very few countries even calculate the significant cost of tax incentives. Australia, Ireland and the UK are examples where 'tax expenditures' are even measured, never mind connected in the debate with "public pension safety nets".  A recent Australian report has noted though that Australia spends about the same on tax incentives for retirement saving as it spends on the income and asset-tested Age Pension (see here).

The report follows up this once-over with recommended national, auto-enrolment saving schemes (such as New Zealand has recently acquired and the UK will introduce in 2012) and saving incentives for low-income earners but with no supporting evidence.

The section on "micropensions" and "microinsurance" for poorer countries seems at odds with the report's support for "universal pensions" in these countries.  The obvious unasked question is why a poorer country (or indeed any country) might need micropensions if there is a Universal Pension.

PensionReforms agrees that there is much in the report that needs to be talked about but before that can happen, there is much evidence that needs to be gathered.  And it would be nice to see less breathless management-speak.   (File size 6.4 MB; 80 pp)  332