Charting new paths forward: The global aging report
Pictured above are Luis Valdés and Renee Schaaf.
In partnership with the Global Aging Institute, Principal uncovered groundbreaking new insights to help ensure the financial security of a rapidly growing segment of the world population.
When we ask “what’s next” for Principal, we’re not just looking ahead to the next year. We’re looking for meaningful steps we can take now to serve long-term financial needs and create a stronger global economy for our future generations.
One such important step in 2015 was the partnership between Principal and the nonprofit Global Aging Institute to develop the research report Global Aging and Retirement Security in Emerging Markets: Reassessing the Role of Funded Pensions.
The report was commissioned to explore the challenge of ensuring adequate and sustainable retirement systems in aging emerging markets—and protect the financial security of people reaching retirement age in the world’s developing countries.
“We’re a global expert in pensions, long-term savings, and asset management, but it’s not enough to say that,” says Luis Valdés, president & CEO of Principal International. “We also have to influence governments, regulators, lawmakers and even competitors to create the right conditions for developing the right solutions for individuals and customers worldwide.”
In many emerging markets (including Brazil, China, and Mexico), the percent of adults aged 65+ is projected to increase more than 200 percent in the coming years. With declining fertility rates and rising life expectancies, dependency ratios (elderly per 100 working-age adults) are projected to triple between 2010 and 2050 in Brazil, China, Indonesia and Mexico.1
As the report explores in detail, pay-as-you-go (or “paygo”) pension systems—which fund retirement benefits out of current revenues—require an increased tax burden on workers, a reduction in promised benefits, or some combination of both to remain sustainable in an economy with fewer active workers covering more retirees.
Renee Schaaf, senior vice president and chief operating officer of Principal International, explained the need for governments to offer public pension policies that balance fiscal sustainability with adequate retirement benefits.
“The balance between those two elements is greatly impacted by trends in global aging,” Schaaf says. “One of the key takeaways of the report is that fully funded personal pension systems will generally outperform paygo in an environment of rapidly aging populations.”
The report’s central conclusion is based on several key insights into fully funded public pension systems, including their ability to alleviate government budget pressures while speeding the development of capital markets—and, most importantly, providing stable and sufficient retirement benefits to those who need them.
It’s now up to lawmakers to treat the aging challenge with urgent priority, and Principal is taking important steps to bridge this gap through advice, education and a strong focus on influencing local policy in emerging markets.
“We are committed to helping change laws and regulations to create environments that support the right solutions,” says Valdés.
1 Pensions at a Glance 2015: OECD and G20 Indicators, OECD, 2015.
