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Citi Perspectives for the Public Sector |
2014
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Policymakers across the globe are
struggling with the implications of
aging populations. By 2020, the global
population aged 65 or above is projected
to number more than 700 million, or
300 million more than in the year 2000.
The population aged 95 or above is
projected to exceed 5 million people
across the globe, or more than three
times the number of very old in 2000.
The retirement landscape is changing. Decades ago, defined benefit
pension plans were the norm for workers with retirement systems.
However, defined contribution plans are increasingly replacing defined
benefit systems around the world. As these defined contribution
schemes mature and as populations near or reach retirement age,
policymakers are shifting their attention from the accumulation phase to
the withdrawal stage.
Corporations have been abandoning defined benefit plans due to rising
costs, increasing longevity and the impact on corporate financials that
can be caused by volatility in pension plans’ funded status and the
resulting required contributions’ effect on corporate financials. Many
pension experts also contend that defined contribution plans are better
suited for today’s mobile worker, due to their portability, compared to
defined benefit plans that may only vest after many years of service.
The Global Shift
Toward Defined
Contribution Plans:
What To Do About
The Payout Stage?
Peter Orszag
Vice Chairman
of Corporate and
Investment Banking,
Chairman of the
Public Sector Group
and Chairman of the
Financial Strategy and
Solutions Group,
Citi
Charles Millard
Head of Pension
Relations,
Citi