Retirement Lessons from Other Countries

Though not without their struggles, education and retirement system initiatives in other countries can be examples for the U.S.


“In Europe, the big issue is the demographics of an aging population,” says Denise Voss, chairman of the Association of the Luxembourg Fund Industry (ALFI) and conducting officer at Franklin Templeton Luxembourg. “Where you now have four working people for every one over 65, soon it’s going to be two.”

That shift in the age of the population is going to create an enormous stress on the state pensions in European nations, and it’s compounded by another factor. “It’s going to be a challenge to get people used to individual savings,” Voss says. In most European countries, people are simply very used to getting the state pension. The answer lies in a combination of investor education and awareness.

Another difference between Europe and the U.S. is the sense of urgency, which at the moment seems to be greater in the U.S, Voss notes.

Taken together the growing urgency and the challenge of reaching people mean that education and messaging will become more important, in the U.S. and globally. “It’s a challenge to get to people at any age, but the best age is when people are young,” she says. “Telling them they need to save for their own retirement. That’s the main challenge.”

NEXT: Education efforts in other countries


A growing trend, Voss believes, will be ever-more specific and creative messaging. She cites a video game created for kids (most likely Bite Club), which uses a vampire theme to target teenage girls. (“Even when you live forever, it’s never too early to start saving for retirement.”)

Germany has a magazine and website targeted at 16-year-old high school students who are likely to work after they graduate. “They’ll need basic financial skills for budgeting and saving,” Voss says of this state-level initiative. “It’s a great magazine with pictures of the kids and social media. There are a lot of tools at our disposal, and we don’t have to rely on schools as much.”

But if school is the place for financial literacy and education initiatives—and many believe it is—school districts might want to take a look at France. Paradoxically, discussing money in France is just not done, Voss says. “It’s considered gauche.” But they have a robust transversal approach that Voss believes is the soundest way to teach financial skills to students. Each teacher, across the curriculum, incorporates some element of financial education into whatever is being taught: mathematics, history, etc.

“I think they find the teachers are quite open to it,” Voss says, “especially those that understand the topic themselves—because they themselves were educated in finance.”

She adds that countries like Brazil and China have begun successful messaging programs to help people see the need to start saving. Anbima, a Brazilian association of states, and financial and capital markets, offers a university-level investor education program with college-age messaging.

NEXT: Successful retirement system practices

Ed Farrington, executive vice president of Natixis Global Asset Management, believes it is instructive to look at successful retirement systems in other countries and study what has made them successful.

“Why has KiwiSaver [in New Zealand] worked?” he asks. “One clue is the auto environments, government incentives and the employer-mandated participation.” The program is not dissimilar to the U.S. defined contribution (DC) plan, made up of worker contributions plus or minus investment returns, minus any withdrawals, fees and taxes.

European states act autonomously in setting retirement policy. In Luxembourg, for instance, where Voss lives, 8% of a person’s salary up to a specific ceiling is given to the state pension. This contribution is matched by the government as well as the employer, and that is the extent of mandatory saving in Luxembourg.

From member state to member state, and company by company, the offerings across Europe are varied, Voss observes. A pension could be a traditional monthly payout or it could be a lump sum. The contribution levels can be different and the requirement to contribute can vary. Some countries have tax incentives or use a limited amount of personal savings to link to a life insurance product.

Some economies have advantages that don’t exist in the U.S., says Ed Farrington, executive vice president of Natixis Global Asset Management, starting with a political environment that can make changes more quickly than the U.S. “Given our process, addressing structural themes takes longer,” he observes. The beginnings of political change can be seen, Farrington believes, in the U.S. state initiatives to broaden access to DC-like plans.

Another pattern in European retirement systems, Farrington notes, is that countries with the lowest income inequality, such as Denmark, and high per capita incomes have the strongest retirement systems. Even allowing for the higher tax burdens, he says, low income inequality minimizes the impact of that burden.

Voss looks on the 401(k), which has no true equivalent in Europe, as a positive addition to the retirement system. When administered to fullest extent, the 401(k) plan has proven to be a very strong vehicle that has helped people save for a longer, dignified life in retirement, Farrington adds. “Make sure we’re providing access and a strong as incentive as possible. It is proving to be a successful system when those things are in place,” he says.