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Disruptive Megatrends Cited in Call for New Retirement ‘Social Contract’

Megatrends such as increases in longevity and declining birth rates are placing a growing financial strain on social security safety nets and workplace retirement plans, compelling a need for a new social contract for retirement, a new report suggests.

The New Social Contract: A Blueprint for Retirement in the 21st Century, by the Aegon Center for Longevity and Retirement (ACLR), Transamerica Center for Retirement Studies (TCRS), and Instituto de Longevidade Mongeral Aegon contends that traditional retirement systems in many countries are “crumbling” due to reductions in government benefits, increased life expectancy, volatility in financial markets, changes in labor markets and prolonged low interests rates.

The report, which is based on a 2018 survey of 16,000 workers and retirees in 15 countries spanning the Americas, Europe, Asia and Australia, found that:


  • Nearly half of today’s workers and retirees believe that future generations of retirees will be worse off than current retirees (49% globally and 46% in the United States).

  • Only 9% of U.S. of workers and retirees feel that the government should do nothing to address the cost of Social Security, believing it will remain perfectly affordable in the future (7% globally).

  • Respondents believe employer-sponsored retirement benefits are vital in helping people prepare for retirement financially, but only 57% of workers in the U.S. and 43% globally say their employer offers a retirement plan that includes an employer contribution.

  • Just 55% of U.S. workers (39% globally) are “habitual savers” who always make sure they are saving for retirement.

  • Only 32% of U.S. workers (25% globally) believe they are on course to achieve their expected retirement income needs.


“People are living longer than any time in history and birthrates are declining. This phenomenon known as ‘population aging’ is financially straining government-sponsored retirement benefits. Simultaneously, employers have been replacing traditional defined benefit pension plans with employee-funded defined contribution retirement plans," says Catherine Collinson, CEO and president of Transamerica Institute and TCRS, and executive director of ACLR.

Meanwhile, the global Aegon Retirement Readiness Index (ARRI) score stands at 5.9 in 2018, which is considered a “low” level of retirement readiness, according to the report. It notes that the overall index has stayed unchanged compared to 2017 and little change has taken place since the survey began in 2012, when it was 5.2. The U.S. score for 2018 was slightly better at 6.5, compared to 5.6 in 2012.

When asked what financial means they are currently using or have used to prepare for retirement, Social Security/state provision (46%) was cited most frequently by respondents, followed by savings accounts/money market funds/CDs (38%), a private pension/IRA (29%), life insurance (24%) and stocks/bonds/mutual funds (23%). Only 19% cited a company-funded DB plan, and 16% cited an employee-funded DC plan.

To address these perceived shortcomings, the report proposes that a new social contract “must address the need for a realistic distribution of responsibility in how people fund and prepare for their retirement, while ensuring that the necessary tools, resources, and infrastructure are provided.”

According to the study, essential design features of a new social contract for retirement would include:


  • sustainable Social Security benefits;

  • universal access to retirement savings arrangements;

  • automatic savings and other applications of behavioral economics;

  • guaranteed lifetime income solutions;

  • financial education and literacy, and lifelong learning;

  • longer working lives and flexible retirement; and

  • accessible and affordable health care.


“A new social contract must ensure that individuals are educated about the all-critical need to strategically plan how to manage their savings in retirement, to avoid running out of money, and to be knowledgeable about options available to help them do so,” the report states. It adds that access to professional advice must be readily available and affordable, and that governments, employers and others should increase awareness of opportunities to have a portion of their retirement savings distributed in the form of guaranteed income.

The report is based on findings from the 7th Annual Aegon Retirement Readiness Survey, which in turn is based on a survey of 14,400 workers and 1,600 retired people in 15 countries: Australia, Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Turkey, the U.K. and the U.S. The online survey was conducted in respondents’ native languages between Jan. 29 and Feb. 19, 2018.

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