Retirement industry sees challenges, opportunities

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      American Funds video transcript: “Retirement industry sees challenges, opportunities”

Apu Sikri: As one of the leaders at Capital Group responsible for our retirement business, when you look out five years, what are some of the challenges and some of the opportunities that you see for savings participants and for the industry to meet them?

Ralph Haberli: Well, I'd say there are certainly quite a few challenges. And I think those challenges have gotten a different degree of focus over the last couple of years.

In the U.S. — I'll stay in the U.S. context here — [there’s an] order of $925 trillion savings gap, defined as what people have saved and what they will need to live in retirement at the levels of expectations that they've set. That's a big deal. That's a big number that really, I think, has gone from an investment problem — a retirement problem — much more to a broader socio-political problem and political discussion. So, we’ve sort of crossed over that divide, and are seeing much more — appropriately so — focus and attention on retirement.

Some of the challenges that I'd highlight we've touched on. The shift from a pension environment to a defined-contribution environment. A lot of people relied on those pensions. We need to find a way to replace that and haven't really nailed that to date. Significant funding issues on some of those pensions. So, even if you're a fire fighter or teacher working in a municipality, you may be in a pension plan that isn't fully funded or won't be able to meet the expectations that were set when you took that job. That's something that we need to wrestle with and find the right combinations of pension vehicles as well as defined-contribution vehicles, which we are increasingly seeing as a tool to augment some of those municipalities.

Another challenge that I'd highlight is access. So, if defined contribution is the future — and I think that's fairly uncontroversial at this point — only about half of working Americans have access to a defined-contribution plan. That's something that we as an industry need to address. They need to find ways to get it into the hands of more and more workers, more and more savers, to give them the benefits of a retirement plan.

And then the final point that I'd highlight on challenges is, we think about retirement, but retirement really sits in the context of a much broader set of issues around longevity. So, we're all living longer; that's great news, but it means we've got to save more. Health care costs are going up. And just the general expectations of what we have and what we'll need are going up. So, there's a gap there that needs to be addressed.

I think I dwelled on a lot of the negative there. There is also a lot of good. 

If you look at the U.S. marketplace and defined contribution, we had a real watershed moment in 2006 when the Pension Protection Act came out, a very sweeping piece of legislation that’s done everything from target date as a default investment plan design [to] a broad set of guidelines for how to set up a 401(k) plan. I'd say looking back now to 2006, the Pension Protection Act really worked.

Those plans that followed — and, over time, have adopted those principles — are really in a great space, are on a good trajectory and are seeing the benefits of that sort of design and setup. If you're in a plan that is well-run today, you're going to have access to great investments. So, there is focus on it, there's fiduciary attention on it, there's a very regular expectation of reviewing those managers. And you're going to have oversight that you wouldn't get if you were just investing by yourself. So, a real culture of oversight both from the plan itself as well as the advisors and consultants that may be working with them. That's all very good news.

There certainly are some very real challenges. There's a lot of work to do. But we've got a great blueprint that has made significant headway and progress, as a real credit to the work that plan sponsors have done on behalf of their employees and participants that we can build on to address some of those challenges.


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Despite important progress over the past several years, the retirement industry faces significant challenges. Capital Group’s Ralph Haberli explains.