Addressing the Challenge of Global Ageing?Funding Issues and

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44 Addressing the Challenge of Global Ageing—Funding Issues and Insurance Solutions
Insurance as a funding and risk transfer mechanism in old-age protection 3. Insurance as a funding and risk transfer mechanism in old-age protection: positioning and track record 1. The case for insurance Milka Kirova Global population ageing poses huge funding challenges for public and private pension schemes. The changes in demographic profiles imply that there will be fewer people of working age to support the older generation’s increasing demand for retirement income and public services such as healthcare. In particular, the fiscal challenges faced by the public programmes for the elderly have highlighted the importance of private savings for retirement. Both public and private occupational pension plans have come under mounting funding pressures and many defined-benefit pension schemes, which bear substantial exposure to longevity and financial market risks, have become underfunded. 1 Increased life expectancy means that these plans may not have made enough financial provision and the costs may have to be covered by employers or through younger generations paying higher contributions. The emergence of large public and private pension funding gaps has raised major concerns about retirement benefits in the future. In many markets a pattern has surfaced that represents a shift from state and employer provisions for retirement income to an increased emphasis on the individual bearing the associated financial risk. Governments are proposing various initiatives to cut pension expenditure, such as raising retirement ages and reducing benefits to account for increased life expectancy. It is becoming increasingly common for employers to offer only defined-contribution plans, where employees’ pensions depend on their accumulated funds, passing the risk associated with providing income during retirement to the individual. 2 The limited nature of government-run and employer-based retirement plans means that people should undertake supplementary saving and investment for retirement. But saving and investing are generally not enough since they require longevity and investment risk management at the individual level that can most effectively and efficiently be addressed through insurance. How radical the shift in responsibility is from the public and corporate sectors to individuals largely depends on the structure of existing pension systems. The picture is quite heterogeneous around the world. Countries with lower state pension provisions tend 1 According to OECD, in 2009 the median funding level of the aggregate defined-benefit obligations of 100 publicly traded companies was a deficit of 26 per cent. See OECD (2011) and Ponds (2011) for a detailed discussion. 2 In the U.S., for example, only 30 per cent of workers in medium and large private establishments had defined-benefit pension coverage in 2010, down from 36 per cent in 2005. Source: Employee Benefit Research Institute. 45
Page 1 and 2: No. 6 June 2012 The Geneva Reports
Page 3 and 4: Addressing the Challenge of Global
Page 5 and 6: Contents Foreword John R. Strangfel
Page 7 and 8: Foreword John R. Strangfeld Ageing
Page 9 and 10: Editorial and executive summary Edi
Page 11 and 12: Editorial and executive summary per
Page 13 and 14: Editorial and executive summary the
Page 15 and 16: Editorial and executive summary mos
Page 17 and 18: Editorial and executive summary nex
Page 19 and 20: Editorial and executive summary thi
Page 21 and 22: Part 1 Analytics 15
Page 23 and 24: How demography is reshaping the eco
Page 39 and 40: 1. Introduction Global ageing: root
Page 41 and 42: persist such as control of chronic
Page 43 and 44: Global ageing: root causes and impl
Page 45 and 46: is provided for more money. The oth
Page 47 and 48: The main and most direct impact of
Page 49: Global ageing: root causes and impl
Page 53 and 54: Insurance as a funding and risk tra
Page 63 and 64: Pension funds make pre-agreed fixed
Page 65 and 66: Sources: Swiss Re Economic Research
Page 67 and 68: 4. The financial crisis: impact on
Page 69 and 70: The financial crisis: impact on the
Page 71 and 72: 220 210 200 190 180 170 160 150 140
Page 73 and 74: tors 90 Japan The financial crisis:
Page 81 and 82: Part 2 Solutions and Prerequisites
Page 83 and 84: Funding for old age: an overview an
Page 89 and 90: Through this rider, retirement inco
Page 91 and 92: 1. Introduction 6. Insurance as a s
Page 93 and 94: Private financing also plays an imp
Page 95 and 96: 4. The markets for LTC insurance Th
Page 97 and 98: Insurance as a solution to cover lo
Page 99 and 100: Insurance as a solution to cover lo
Page 101 and 102:
7. Other insurance products to cove
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Insurance as a solution to cover lo
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1. Introduction The insurance indus
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workers have pension benefits that
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The insurance industry’s role in
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The insurance industry’s role in
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A traded longevity index does not p
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etirement age (as is happening in m
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1. The world of finance and the rea
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The holistic view: why all pillars
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What should be done: some recommend
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Retirement security in the United S
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And as for the second question pose
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Part 3 Effects on Key Stakeholders
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1. Introduction The challenge of pu
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The challenge of public pension ref
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Replacement rate 2050 70 60 50 LUX
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It is expected that the market for
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tax pensions at a lower rate. Where
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Figure 2 Funding rules under the Pe
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Asset management strategies such as
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Impact of a pension buy-in Plan spo
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1. Background Although the scope an
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Insurers are experts in managing th
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Figure 1: Inflation-adjusted growth
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7. Insurers as investors 6 Insurers
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(cf. NAIC data for 2002-2009). Over
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Insurers and their role in the econ
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14. Individuals and their financial
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Pension asset accumulation When con
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who continue to take the lead in re
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in 2009 showed that product penetra
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Over one-third of those in their 50
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lead to sub-optimal consumer outcom
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References Individuals and their fi
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About the authors About the authors
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About the authors Margaret (Peggy)
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About the authors Gordon Stewart se
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Publications of The Geneva Associat
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Publications of The Geneva Associat
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Other publications of The Geneva As
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The Geneva Association and Life, He
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The Geneva Reports Risk and Insuran
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