Social Security and Government Pensions

Governments globally are tasked to make financial provision for employees on retirement, as well as providing support for the wider population, both during retirement, but also as a result of sickness, disability or unemployment. While there are major differences between countries' pension and social security arrangements, most countries are being forced to re-consider their retirement and social security strategies in the face of significant demographic, regulatory, investment, risk management and administrative challenges.

Demographic Changes

Aging populations and a declining labor force in regions such as Europe and North America undermine the sustainability of pension schemes and retirement plans. Conversely, in maturing markets in Asia and Latin America, there is increasing pressure to create retirement savings plans for a growing workforce, as well as supporting a burgeoning older generation. Migration trends are resulting in the need to collaborate more extensively across schemes, and to collect contributions and make payments overseas. In all countries, citizens and governments alike are demanding more accountability in the way that public sector pensions are invested and managed.

Social Security and Pensions Reform

Pressure to reduce public sector deficits is resulting in governments seeking to reform social security and pension provisions to reduce costs and avoid abuse. In countries with a large unbanked population, this includes an obligation to increase financial inclusion and increase efficiency and control over payment.

Asset & Liability Mismatches

Volatile performance in equity markets, low interest rates and changes to accounting regulations have resulted in government pension schemes in countries such as UK, Netherlands, Germany, Canada, and Japan incurring substantial deficits. These schemes are now adopting an asset and liability management approach to investment, with a more urgent need to increase investment returns whilst mitigating risks. Those with buffer funds, such as in Australia, Norway and China, will also need to respond to increasingly complex investment portfolio and governance requirements. With an average of 2% of GDP already spent on funding public sector pensions (source: OECD) and considerably more in some countries, there is significant political pressure to balance current budgetary pressures with future retirement needs. Consequently, pension funds are seeking specific investment accounting, performance reporting and monitoring capabilities to enable them to meet current and future investment challenges, and manage risk.