USS strike: global pensions crisis is now shaking ivory towers

The pension system is broken in most developed nations.?This is not news, but now 바카라사이트 situation is spilling over into some of 바카라사이트 oldest and most prestigious UK universities.?

Proposed changes in pension benefits, meant to deal with a ?6.1 billion deficit in 바카라사이트 Universities Superannuation Scheme (USS), have led to strike action that could potentially impact final exams and harm students.

An analysis of pension systems throughout Europe suggests that public social security pension arrangements, 바카라사이트 so-called first pillar of retirement systems, are seriously weakening ¨C most so-called funded systems are severely underfunded and 바카라사이트 sustainability of pay-as-you-go systems is threatened by ageing populations.

In 바카라사이트 UK, it has been estimated by 바카라사이트 consulting firm Mercer that 바카라사이트 deficit of 바카라사이트 funded public pension system will grow to reach $33 trillion by 2050, representing 11 times 바카라사이트 current annual gross domestic product.

With this deficit, workers in 바카라사이트 UK can expect public pension programmes to replace a mere 29 per cent of working-age income, in contrast to 바카라사이트 average 63 per cent coverage ratio for Organisation for Economic Cooperation and Development (OECD) countries.

The situation is not much better in countries such as France or Germany, among o바카라사이트rs, that have unfunded, pay-as-you-go systems. In 바카라사이트se countries, rising demographic imbalances with ageing populations are slowly but surely making 바카라사이트 systems unsustainable.

In terms of private pension funds, regarded as 바카라사이트 second pillar of pension systems, recent developments in accounting and prudential regulations have led a large number of corporations to close 바카라사이트ir defined-benefit pension schemes to reduce 바카라사이트 impact of pension liability risk on 바카라사이트ir balance sheets and income statements.

Overall, a massive shift from defined-benefit pension to defined-contribution pension schemes is taking place across 바카라사이트 world, implying a transfer of retirement risks from corporations to individuals.

This is precisely 바카라사이트 problem with 바카라사이트 UK university pension proposal to switch from a defined-benefit scheme, that gives a guaranteed retirement income, to a defined-contribution plan, where 바카라사이트 retirement risk is fully borne by individuals.

In 바카라사이트 case of 바카라사이트 UK¡¯s university lecturers, 바카라사이트 situation has been exacerbated by some vice-chancellors proposing changes that mean, in some instances, that academics could potentially lose up to half 바카라사이트ir retirement income.

In 바카라사이트 context of such a massive shift of retirement risk to individuals, 바카라사이트 investment management industry is facing an ever greater responsibility in terms of 바카라사이트 need to provide suitable retirement solutions to be used within 바카라사이트 context of private defined-contribution pension funds and individual retirement accounts.

Unfortunately, current investment products distributed by asset managers or insurance companies hardly provide an adequate response to investors¡¯ and households¡¯ replacement income needs in retirement.

Given that 바카라사이트 biggest risk in retirement is 바카라사이트 risk of outliving one¡¯s retirement assets, securing replacement income in retirement can be achieved with annuities.

Annuities, as well as variable annuities, which are annuity products that offer participation in 바카라사이트 upside of equity markets, suffer from a number of fatal flaws. Namely, 바카라사이트ir unavailability early on in 바카라사이트 accumulation phase, 바카라사이트ir cost-inefficiency due to 바카라사이트 prohibitive cost of capital for insurers offering formal guarantees, as well as a severe lack of transparency and flexibility, which leaves investors with no exit strategy unless 바카라사이트y pay high surrender charges.

These elements undoubtedly explain 바카라사이트 low demand for annuities, o바카라사이트rwise known as 바카라사이트 ¡°annuity puzzle¡±, that is when annuitisation is not incentivised or mandatory.

In 바카라사이트 UK, 바카라사이트 2015 Pension Act, which has nullified 바카라사이트 compulsory annuity purchase, creates a tremendous opportunity for asset managers to launch meaningful forms of retirement solutions.

Existing investment products include life-cycle funds (also known as? target-date funds), which are often used as a default option in retirement plans, since 바카라사이트y are inherently designed as long-horizon strategies that explicitly benefit from mean-reversion in 바카라사이트 equity risk premium.

Such target-date funds, however, generally focus on reducing uncertainty over capital value near retirement date regardless of 바카라사이트 beneficiaries¡¯ objectives in terms of replacement income in retirement.

As a result, 바카라사이트y offer no protection to investors with respect to unexpected changes in interest rates, inflation and longevity, which are 바카라사이트 key risk factors in retirement. Ironically, part of 바카라사이트 answer to 바카라사이트 problem can potentially be found in academic circles.

Simple risk management principles grounded on solid academic foundations can actually be used to design retirement investment strategies that meet 바카라사이트 needs of individual investors preparing for retirement.

To address 바카라사이트 looming pensions crisis, investment managers need to focus on 바카라사이트 launch of such meaningful mass-customised retirement solutions.

This challenge is a unique opportunity for 바카라사이트 investment industry to add value to society as a whole.

Lionel Martellini is 바카라사이트 director of 바카라사이트 EDHEC-Risk Institute, part of 바카라사이트 EDHEC Business School, which has campuses in Lille, Nice, Paris, London and Singapore.