Cost-effective default arrangements, appropriate regulation and clear government objectives are among the principles for an ideal retirement system, the CFA Institute has said.
A 32-page report, An Ideal Retirement System, prepared by Mercer for the CFA Institute – an organisation that promotes standards for finance professionals – outlined 10 principles, which included setting a minimum level of funding to pensions for all workers with contributions from employers, employees and the self-employed.
The report warned that retirement systems must adapt to demographic shifts, adding: “The provision of financial security in retirement is critical for both individuals and societies as most countries are now grappling with the social, economic and financial effects of ageing populations.”
|10 principles for an ideal retirement system, as laid out in the report|
|The government must establish clear objectives for the whole retirement system.|
|A minimum level of funding should be made into a pension system for all workers, with contributions from employers, employees and the self-employed, as well as those receiving income replacement.|
|Cost-effective and attractive default arrangements, before and after retirement.|
|Overall costs of each pension arrangement should be disclosed.|
|A flexible system, taking in factors such as different retirement ages.|
|Benefits provided during retirement should have an income focus but allow some capital payments or withdrawals.|
|Contributions at the required minimum level should have immediate vesting and portability.|
|Governments should give taxation support to the funded pension system in a sustainable way.|
|Governance of pension plans should be independent from the government.|
|The pension system should be subject to appropriate regulation.|
According to the study, it is generally accepted that for most workers, an ideal income in retirement from all sources was between 65 per cent and 80 per cent of their average revalued income, from the whole or latter part of their career.
In June, Baroness (Sally) Greengross, chief executive of ILC-UK, warned that the government needed a long-term strategy for later-life funding.
She said: “For tomorrow’s pensioners, there is a huge question about whether they can depend on the state to provide adequate levels of support, given the rising fiscal pressures of supporting an ageing population.”
Clayton Cumming, financial adviser for Glasgow-based Advice and Wealth Management Solutions, said: “In the UK the retirement savings system already ticks a number of these boxes because we have tax support, regulation and many providers have default options.”