Exploring the impact of behavioural science on the persistency and profitability of voluntary retirement savings in the retail sector

What are the levers of attractiveness of long-term care insurance that we need to act on? In France, the creation of a 5th branch of Social Security dedicated to autonomy is a significant step forward. However public finances will not be able to assume the costs linked to the loss of autonomy of all our fellow citizens and families will not have all the financial resources to absorb the remaining expenses of their elders. These issues undeniably argue for the use of insurance solutions to support the public authorities. It is therefore essential that we, as actuaries, continue to work on making our long-term care products more desirable and durable. This workshop will be an opportunity to present an overview of the long-term care insurance market, highlighting in particular the issues, practices, market projects and prospects specific to this risk.

Taxation, regional regulations and certain exogenous factors might affect a plan sponsor’s interpretation, approaches and success in achieving sustainability of their defined benefit plan. Rules regarding the design, funding and taxation of most defined benefit plans are regional, typically by country, or perhaps by state or province. The rules usually focus on encouraging sponsorship and participation, and/or ensuring sufficient funding. There are often other goals, such as limiting tax deductions or preventing discrimination by age, gender, pay-level, etc. While they may be well-intended, the rules can often constrain a sponsor’s ability to implement effective, long-term policies that seek to optimize plan sustainability. Layered on top of the general rules are often tax laws that can influence or reward sponsor and participant actions. These incentives, or sometimes disincentives, can lead to sponsor and participant choices that might be counter to a plan’s optimal path to sustainability. In addition, an organization’s approach to plan sustainability could be constrained by exogenous factors, such as: prioritization of short-term financial results diverting from long-term funding; demographic aging if benefit costs (intentionally or unintentionally) rely on intergenerational cross-subsidies; long-term global trends affecting capital market returns, long-term return expectations or inflation experience; and mortality improvements. The paper will examine how these constraints can affect a plan’s sustainability, how a sponsoring organization might better achieve sustainability if unconstrained, and a case study of the United Nations Joint Staff Pension Fund, which operates free of certain constraints that exist for plans operating under regional regulations and/or taxation regimes.

The South African (SA) government intends reforming its social security system, including retirement. Views vary on how to do this. Proposals often consider international experience, but seldom that of fellow African countries. Africa is experiencing demographic change, especially reduced infant mortality, reduced fertility and increasing old age longevity. SA is advanced relative to other African countries, despite high unemployment levels. SA’s informal sector is large relative to developed countries, but smaller than Africa’s norm. African countries have tried different reform approaches. SA’s non-contributory pensions are advanced relative to Africa’s norm. Most African countries have mandatory national schemes; closest SA equivalent is the Unemployment Insurance Fund (UIF). DB design is the norm. These schemes are experiencing financial strain, leading to increased contributions/reduced benefits. SA’s well established occupational retirement funds have experienced significant reforms recently. Occupational fund coverage is not mandatory but is high relative to other African countries, even those with compulsory coverage. SA is new to introducing informal sector contributory pensions. Other countries have tried various approaches without finding perfect solutions. Maximising coverage requires all pension types. Pension reform is iterative, phasing-in change is best. Government should start with incremental improvements. Sequencing of reforms is important, changes at each pension provision level influence what can/should be done at subsequent levels. SA should move towards cost-effective universalisation of non-contributory pensions. African countries’ experience should be considered when targeting informal sector coverage. Compulsory formal sector contributory pensions are recommended. Consider expanding the UIF to cover retirement instead of creating a new scheme.

Brazil made a comprehensive pension reform in 2019, but several points were left open. The minimum contribution period is low, the retirement age should be higher, and the age difference between genders could be minor. Based on this diagnosis, this article proposes a reform that progressively raises the retirement age and minimum contribution period and reduces the age difference. We propose that retirement be obtained in two ways: by age or points (given by the sum of age and contribution period). We calculate four individual pension indicators: Replacement Rates, Internal Rates of Return, and Required and Effective Contribution Rates. In the Base Scenario, we analyze the workers with an initial income of 1 minimum wage. Retirement Rates could replace around two-thirds of the income. The Required Rates for women would be higher and closer to the Effective Rates. Internal Rates of Return would be close to zero or even negative. We made two extensions. Firstly, the case when the contributory density if of 60%. The Replacement Rates would be reduced by more than ten percentage points, and there would be an increase in the effective retirement age. There is a decrease in other indicators. The second extension studies the case of workers with an initial income of 3 minimum wages. The results are similar to the Base Scenario, except for the Effective Tax Rates, which are much higher due to the progressive rates implemented in 2019. The findings highlight the importance of analyzing the redistributive impacts of pension reforms.