Biggest Social Issue Of Our Time: Saving For Retirement

By Linda Koco
InsuranceNewsNet

NEW ORLEANS – Getting Americans to save more is ”the biggest social issue of our time,” maintained Stig O. Nybo here at the annual  Retirement Industry Conference sponsored by LIMRA, LOMA and Society of Actuaries.

Addressing this social issue will take an “absolutely bold response,” continued the president of pension sales and distribution for Transamerica Retirement Solutions.

The response “won’t come from legislation alone or industry action alone. It has to be a full court press to get change to happen,” he said.

Nybo was one of four executives together to speak on a panel on leadership and retirement security. It was a lively discussion, with various executives floating ideas or thoughts that were surprising if not bold.

Even the panel moderator, Robert Kerzner, got into the act. For instance, upon hearing some of Nybo’s ideas, and also those of Jay Wintrob, president and chief executive officer of AIG Life and Retirement, Kerzner pointed out that the executives are talking about “materially altering how people behave” in the retirement area. (Earlier, Wintrob had questioned why long-term consistent savers in retirement plans should still be subject to the age 59 ½ penalty for early withdrawals, and why, with today’s increased longevity, there isn’t more flexibility in application of the required minimum distribution rules from qualified plans.)

Changes broached by the panelists would require people to rally around an idea, such as putting out forest fires or ending litter, observed Kerzner, who is president and chief executive officer of LIMRA, LOMA and LL Global.  Implementing the changes would require a “major governmental movement,” he predicted.

How to make bold changes?

The problem is, with Americans so divided today, “Congress doesn’t want to take on anything that doesn’t generate revenue or (that doesn’t) kick the can down the road,” Kerzner continued. “So I’m curious, how are we going to do that?”

Nybo pointed to the retirement system in the United Kingdom. In that country, employees put money into the retirement plan, he said, and the employer and government each put in a match. But people can’t get to that money until they are age 65, at which time they must annuitize 75 percent. There are no loans and no hardship withdrawals, he said. 

“It’s a courageous plan design for an entire country,” the Transamerica executive contended. “In America, I think we’re strong enough to have that kind of design.”

But for this to happen, the industry has to have “the courage to do the right thing,” he stressed.

If the industry doesn’t stand up to Washington regulators and legislators and say that “this is where we need to go,” he predicted that Washington will just deal around the edges and not take actions that will help ensure more people are ready for retirement.

He also voiced some opinions on what the industry can do on its own.  The industry provides people with retirement information, Nybo said, but it hasn’t told people what to do to get on a retirement savings path.  He spoke favorably of auto enrollment and auto escalation programs in 401(k) and 403(b) programs, but said people cap out at 5 percent deferral and “that’s not enough.”

“We need to tell people what they need to do, and set the context for them in a way that will lead to success.

“If we don’t get bold about it, it’s not going to change things.”

Today’s defined contribution system is “pretty darned good,” he added, “but we need to get the behavior right.”

Other discussion

Some other points that the panelists raised during the wide-ranging discussion include the following:

Find and train advisors.  Noting that research shows that people who work with an advisor are better prepared for retirement, Wintrob suggested that the industry work on identifying, training, supporting and marketing to the next generation of advisors to work in the retirement market.

Focus on retirement readiness. “We have to focus on how to get people ready for retirement,” said Charles P. Nelson, president of Great-West Retirement Services. They need both products and services, he said, but complexity, regulation and behavioral finance tendencies get in the way.  People don’t just say, “I want to be in a retirement income plan,” he pointed out.  But retirement readiness initiatives, along with things like auto enrollment and auto escalation (in employer retirement plans), should help get them started.

Private equity is OK. Kerzner noted that some executives believe the entry of private equity firms into the variable annuity business could be highly disruptive. However, two panelists didn’t think so. Wintrob labeled private equity a positive development, because it shows that “smart money sees variable annuities as an intelligent investment with ‘some’ rate of return.” Speculation is that private equity’s expected rate of return is in the high teens to 20 percent, so “that tells other carriers what target returns they should aim for,” Wintrob noted. “No one wants to get 10 percent when someone else is at 20 percent.”

Similarly, Eric S. Henderson, senior vice president-individual products and solutions at Nationwide, said he welcomes private equity, from the standpoint that the companies are bringing new capacity into the business at a time when the exits and pullbacks of some other carriers had decreased capacity. If there is a concern, it probably is about certain hedge funds or aggressive private equity firms that may have had a small portion of their vast portfolios fail, he said, adding that “the annuity business in not a business where you want to have a fail.”

Curb the “leakage.” The term leakage refers to the tendency of people to pull money out of their retirement plans after leaving one employer for another, decreasing the person’s retirement savings. Nelson said the tendency to cash out needs to be addressed.

Get in front of the consumer over and over. The repeated interactions between company and consumer and agent and consumer will help create, in the consumer’s mind, an emotional attachment to the company, according to behaviorists. That attachment will help the consumer overcome the immediate bias that causes people to put off making changes (such as starting to save) until tomorrow, said Nationwide’s Henderson.

Longevity is “pretty doggone important.” That comment came from Henderson, too. He noted that even if there is a 95 percent chance a person won’t run out of money, if someone is in the 5 percent, they’ll run out of money. “If you are 94 years old, it’s pretty hard to go back to work at that time,” he said. For that reason, he said the industry needs to do more work around ways to provide guaranteed lifetime income.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].