10 principles for an ideal retirement system
Published July 16, 2015 11:19 AM
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Updated July 16, 2015 11:55 AM
1 Min Read
Overview
What makes a retirement plan successful? How can advisers and other investment management professionals work with plan sponsors to deliver sustainable and trusted benefits? Here are 10 key principles for an ideal retirement system, according to a recent report from the CFA Institute and Mercer.
1) Clear objectives
Clear objectives for the whole retirement system, including the complementary roles of each pillar of income or financial support.
2) Minimum level of funding
A minimum level of funding for all workers with contributions from employers, employees and the self-employed, the report says, which cites an ideal retirement income as 65% to 80% of an average revalued income.
3) Cost-effective and attractive default arrangement before and after retirement
With the ability to make personal decisions in relation to:
The level of contributions, above the required minimum
Investment choice, particularly for DC members
The type and level of any life or disability insurance
Retirement age
The level of contributions, above the required minimum
Investment choice, particularly for DC members
The type and level of any life or disability insurance
Retirement age
4) Disclose costs
Administration and investment costs should be disclosed with some competition present to encourage fair pricing, the report says.
5) Flexibility
Flexibility as individuals personal and financial circumstances vary, the report says, and retirement will occur at different ages and in different ways across the population.
6) Income focus
Benefits provided during retirement should have an income focus but permit some capital payments, without adversely affecting overall adequacy.
7) Immediate vesting
Contributions (or accrued benefits) at the required minimum level must have immediate vesting. These benefits should be accessible only under certain conditions, such as retirement, death or permanent disability.
8) Taxation support
Taxation support from the government in an equitable and sustainable way, providing incentives for voluntary savings and compensating individuals for the lack of access to their pension savings.
9) Independent governance
The governance of pension plans should be independent from the government and any employer control.
10) Appropriate regulation
Appropriate regulation, including prudential regulation of pension plans and some protection for pension scheme members.
