Mark DOWSEY, WATSON WYATT: If you don’t save enough, be ready to face poverty when you retire
WATSON WYATT is one of the world’s leaders in financial and human resources consulting. With a USD 1.3 billion in annual income, 7,000 collaborators and operating in 32 countries, WATSON WYATT provides consulting services for 300 of the world’s largest pension funds. Mark DOWSEY, Senior Consultant in the company, was one of the international speakers at the “Private Pension Day” conference, at FIAR 2008 and answered the questions of an exclusive interview with the PRIMM Insurance&Pensions magazine.
PRIMM: Saving for retirement becomes more and more a topical matter. What are the challenges facing the private pension funds in Central and Eastern Europe, where the Romanian system also fits in?
Mark DOWSEY: Although there are numerous private pension systems worldwide, we currently witness a global trend to adopt models based on the “defined contributions” (DC) philosophy. Actually, this means that we are all faced with the same limitations, problems and challenges.
The first reason for concern is longevity: people live longer than in the past. Many would say that a longer life is a good thing. However, in the context of pensions, the question is whether those who live longer also have the ability to enjoy this longevity. At the same time, there are other demographic challenges as well: first of all, migration. It may have a side effect on the retirement income, thus undermining the trust in the retirement system.
Also, the role of the pension fund administrators is more and more considered to be that of helping participants to the system understand the options they have.
PRIMM: What is specific for the Eastern pension systems, namely from the New Europe, compared to the Western ones, meaning the states with a tradition in this field, in terms of limitations and challenges? M.D.: I don’t think that the East-West axis still explains the differences between various private pension systems at European or global level. As more and more systems give up the “defined benefits” (DB) model and turn to DC, I think we are faced with DB and DC specific problems, rather than East or West issues.
For instance, the public pension system in Romania, based on the pay-as-you-go model, has the same problems as the system in Great Britain - first of all, a very low income replacement rate. On the other hand, Spain, with a DC private pension system, still has a demographic structure able to support the public pension system without immediate pressure -, while many states from Central and Eastern Europe adopted private retirement systems precisely because of this pressure on the public pension system. So this means we have system specific challenges, not Western or Eastern challenges.
PRIMM: What are the effects of the recent demographic trends on the income expected at retirement? M.D.: Given the longevity and the ageing of the population, people need to be told they are faced with three situations: either they save a large part of their current income, thinking about retirement, or they have to work longer and postpone their retirement, or they will suffer from poverty at their retirement age.
Read more of this interview in the future issue of PRIMM Insurance&Pensions magazine.
