Mercer, a wholly-owned subsidiary of Marsh & McLennan Companies, issued a report, “Bold Ideas for Mending the Long Term Savings Gap,” which addresses ways to improve the $70 trillion global retirement savings deficit.
“We do not believe that this is merely a ‘retirement savings matter’. The retirement savings gap is part of the significant financial security issue that is chipping away at productivity and putting individuals into periods of financial instability,” says Jacques Goulet, President of Health and Wealth, Mercer.
Goulet adds that financially secure individuals are confidently able to set and achieve financial goals for themselves and their households, to support their dependents, to enjoy a desired quality of life, and to cover emergencies, without worrying about whether their future income is enough to cover expenses or to sustain retirement.
Through “Bold Ideas,” Mercer outlines the importance of multiple stakeholders coming together to take meaningful action against the savings deficit. Stakeholders include governments, employers, and financial intermediaries, all of whom have the incentive and the ability to help mend the long-term savings gap. Each group also stands to benefit by helping to ensure that their citizens, employees, and customers are able to save efficiently and appropriately for the future.
Mercer lays out four main themes for mending the gap:
- Spur a consumer revolution in financial fitness: Transforming saving into an engaging consumer experience could make it “cool,” just as the fitness revolution of the 1970s made exercising widely appealing.
- Help individuals know what “good” looks like: Give individuals access to smart tools, default options and advice that can help them increase their financial literacy and achieve success.
- Design smart systems to help ensure adequate savings: Given the many things competing for an individual’s paycheck and the lure of the immediate satisfaction over long-term security, voluntary contributions to long-term savings simply may never be enough.
- Redefine work and retirement: As the retirement age rises, keep valuable employees longer for a competitive advantage in the war for talent.
The paper details the main challenges causing the long term-savings gap, including:
- Longer lives combined with lower birth rates;
- Lack of easy access to pensions and savings products;
- Individuals ill-prepared for greater financial responsibility in retirement;
- Lack of trust in financial markets and products;
- Low growth environment; and
- Gender imbalance in long-term savings.