Concerns with retirement savings plans are not limited to just the U.S.
A recent Morningstar study analyzed retirement savings plans in eight countries—Australia, Canada, Hong Kong, New Zealand, Singapore, Sweden, the U.S., and the U.K.—and found that each nation struggled with complex rules impacting retirement plans.
The study, “Going Global: An Evaluation of Retirement Systems Around the World,” observed the eight countries and found that each generally operated within compound rulings and offered investment options that lacked intuitiveness with inexperienced investors. Additionally, each country lacked retirement savings strategies or vehicles that could benefit plan participants. For example, Canada, Hong Kong, Singapore, and the U.K. ranked poorly when it came to fees and benchmarking, while the U.S. lacked savings encouragement.
Together, these factors made it challenging for many individuals to ascertain how best to both accumulate, and then decumulate, retirement savings, the study found.
Different countries utilize tools distinctively
The Morningstar study broke down how countries are utilizing retirement planning tools, including automatic enrollment, default investment options, matching programs, and more, finding that more countries are utilizing automatic enrollment when navigating towards DC plans rather than defined benefit (DB) and/or social security systems.
Singapore and Australia rated highly for their government and employer efforts to fund retirement. The former’s compulsory savings and pension plan, aimed to fund retirement, healthcare, and housing needs, along with Australia’s auto-enrollment system, high contribution level, and recently abolished lower earnings threshold for inclusion, was unmatched compared to other nations.
The study analyzed the auto-enrollment systems in Hong Kong, New Zealand, and the U.K, stating that while the programs are solid enough for employees, all contain lower required contributions. Additionally, both New Zealand and the U.K. permit opt-outs and were found to exclude more employees based on age and earnings level. On the other hand, Hong Kong and Singapore require employers to pay contributions for low-paid employees, without requiring the employees to do it themselves.
When it came to other countries, Canadian and Swedish employees were often found to be a part of collective industry retirement-savings strategies, which supplement Social Security for them. The U.S. was found to have a “less-regimented environment,” as plan sponsors are not required to offer workplace plans or strategies to their employees.
Regarding auto-portability, each country varied in handling inactive vs. active accounts and employee movement. In Sweden, the U.S. and the U.K., employees must be proactive in changing and moving their accounts themselves, while Australia, Canada, Hong Kong, New Zealand and Singapore all adopt various practices to minimize the number of separate savings pools. This includes tying the plan to the individual employee regardless of employer and making it easy to transfer a savings pool when leaving an employer.
Optimizing growth with savings and investments
Through its analysis, the study finds that maximizing inflows through employer matches and tax breaks, and tailoring investment choices to employees are two key factors when optimizing retirement savings accumulations.
Singapore and U.S. ranked highly in matching suitable investment choices to their employees, thanks to regulatory approaches. Due to fiduciary responsibilities in the U.S., employers are required to select a small choice of best-in-class options for members on their plans. In Singapore, the CPF Investment Scheme selects a range of products that it considers likely to exceed benchmark returns.
At the other end of the spectrum, the study found that Australian and U.K. employers adopt the approach that the more choice the better. Consequently, plan members are frequently faced with multiple choices of similar products from different providers. However, the U.K.-government-sponsored NEST master trust scheme adopts a much more guided approach, with a range of retirement-date funds supplemented with a handful of other strategies, executed through a manager of manager approach.
For a full, deep dive on how each country manages and offers retirement savings plans and tools to employee, visit the study here.
SEE ALSO:
- AEI’s Andrew Biggs on How the U.S. Retirement System Compares with Other Countries
- This Central America Country Reigns #1 Again as Best Place to Retire
- Wrong Way: United States Drops in Retirement Security
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
