Risk and Retirement: Where are the future financial hotspots?

It is no wonder that most employees don’t feel financially secure for the future. Many countries' pension systems are creaking under the combined pressure of increasing life expectancy and decreasing birth rates, meaning that fewer workers pay taxes to support each retiree. While we don’t know how this trend will impact future retirement incomes, it is safe to say that there will need to be more reliance on private retirement savings in the future – whether employer or employee financed. Combining data from research across Mercer and Marsh McLennan on pension adequacy, employee sentiment, and employer action, we’ve examined the different challenges that shape retirement risks in various countries.

Clearly, more financial education is needed to ensure that companies and their employees understand what they must save to retire at the desired retirement age. In this year’s Mercer Global Talent Trends Study, a colossal 84% of employees surveyed said that they intend to continue working beyond their normal retirement age. However, experience tells us that this is not likely to be the reality in the majority of cases – either employees’ ill health or a lack of suitable roles gets in the way. At the same time, families will increasingly have to support two generations in retirement – this could become a real problem where families rely on the financial support of younger generations. Better information and tools to model retirement outcomes will be essential for effective retirement planning.

The list of countries where employers report that they are doing a lot, or not enough, to address pension risks contrasts with our own experience. In countries where companies report that they are doing a lot to address pension risk, employers may be caught off guard by rapidly evolving retirement risks. Employers in the UK, USA, Canada, Mexico, and France gave themselves lower (but likely more realistic) scores because the problem of pension adequacy (or inadequacy) is being discussed much more in these countries. Lower paid employees, and those who have taken career breaks, often women, see the biggest shortfalls in retirement income. Much more needs to be done to address these imbalances.