The future of retirement benefits in a Global world

The retirement topic is undoubtedly one of the biggest challenge that Human Resources has ahead for the XXI century. What to do for retirement? How to manage it with local regulations in a global context?

Multinationals are working through the biggest change in benefits strategy that we’ve seen. Over the past decade, costs of defined benefits (DB) employee retirement plan have mushroomed. People are living longer, investment market conditions are difficult, the cost of healthcare is increasing, regulation is tightening and state pension is in decline. And in spite of the best efforts of sponsoring employers, deficits have remained stubbornly on corporate balance sheets.

At the same time, the nature of the workforce is changing dramatically with far more diversity and less predictability in individual career paths, family and financial circumstances, demographics and the form and timing of “retirement”.

In line with this I would like to highlight the study done by pwc global-pension-survey”. It’s an excellence global survey (of 114 major multinationals from across the world) and analysis to understand where we are now and what are the main trends for the next follow years.

Competition has never been so fierce in the marketplace, so employers need to be at the very top of their game at a time when many are tackling a DB legacy that could prove clipping. This is a delicate balances to strike and there are many challenges to address.

3 keys to get a successful global pension strategy

  • Affordable workplace benefits provision that employees value

This means anility for local entity for local entity management to provide appropriate retirement savings flexibly to their workforce, but within clearly understood affordability and risk constrains. The amounts spent must be justifiable in terms of the dividend they provide to the employer and their suitability for an increasingly diverse workforce. Flexibility and innovation are required to address local regulations, culture, competitive environment and workforce requirements.

  • A rigorous and nimble approach to financial and risk management

Financial and risk management should continuously monitor pension risk in the context of broader business risks. They must allow the company to quickly take action to pursue known and wanted risks, hedge or removed unwanted risk and to execute risk reduction measures at the right time and at the right price.

  • Appropriate governance structure

Clearly articulated governance (decision-making and decision-implementation) that sets out what matters most to the organization about retirement benefits management, and the resulting allocation of responsibilities between head office and local entity management. Processes should be appropriate and proportionate to the multinational’s own circumstances, bring control and flexibility without excessive complexity, and effectively engage the right stakeholders (including HR).

What HR needs to discuss with the board

HR is the key area to deal with retirement benefits as part of the desired overall reward and employment deal

  • Increasing workforce tensions around justifying continuing legacy DB benefits for and increasingly small proportions of the (longer-serving, older) workforce, given the huge difference in costs and risks for the employer versus what is being provided for (younger, shorter-service) employees participating in DC arrangements.
  • In the increasingly DC world, dealing with the issue of “adequacy” of retirement provision. Without education and action, many employees will retiree inadequate retirement savings.
  • Improving the knowledge, financial literacy and decision-making among employees.
  • Addressing the increasing diversity in employees’ needs and wants. Providing appropriate flexibility in the form and timing in which people can use their retirement savings.
  • Ensuring money spent by the employer on retirement savings is a good use of the reward budget relative to other options.
  • Securing the appropriate arrangements with financial services and administrations suppliers. Flexibility to have fit-for-purpose provision that takes into account the local needs of the business and its employees, including addressing the local environments, regulations, customs and competition.

Borja Burguillos

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