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The research highlights the importance of multiple stakeholders coming together to take meaningful action against the savings deficit. Stakeholders include governments, employers, and financial intermediaries.
The paper details the main challenges causing the long-term savings gap, including:
- Longer lives combined with lower birth rates
- Lack of easy access to pensions and savings products
- Individuals ill-prepared for greater financial responsibility in retirement
- Lack of trust in financial markets and products
- Low growth environment
- Gender imbalance in long-term savings
Additionally, it carries solutions for meeting these challenges and mending the gap, two of which are listed below.
Spurring a consumer revolution in financial fitness
A revolution is needed to engage individuals in saving for the long term. Just like exercise, saving can be painful, both because it gives individuals more pleasure to consume now than later and because interacting with savings products and financial intermediaries is complex, confusing and time-consuming, and expensive.
Transforming saving into an engaging consumer experience rather than a financial services experience — presenting it not as something difficult and unpleasant but as achievable and interesting through simplified language and tools and the ability to track progress in real time — could lead to an explosion in the savings industry.
Although the financial services industry must help lead such a revolution, employers have a critical role to play in their ability to bring vetted products and services to their employees. The government, too, must help spur the revolution by expanding pension coverage and individuals’ access to savings programmes and products.
Helping individuals know what “good” looks like
Mercer’s view is that governments and employers have an important role to play in helping individuals recognise what “good” looks like when it comes to savings products, advice and decisions. Both governments and employers have the responsibility to do so and much greater capacity than do individuals to assess products, gather information and discriminate among financial intermediaries.
The payoff for both is a more financially secure and productive workforce. And this involvement will help create a virtuous circle that rewards quality financial intermediaries and products, penalises practitioners of “churn and burn,” increases trust and creates a greater appetite among individuals for appropriate levels of risk to build savings.
This is not just about increasing individuals’ financial literacy. Mercer’s research has found that greater financial knowledge by itself rarely translates into action. What does spur action is giving individuals access to smart tools, default options and guidance that can help them achieve success.
Photo / 123RF
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