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Better Pensions, Better Lives: How investment funds can help individuals save for retirement and reduce fiscal pressures on governments

International agenda | Pensions
22 December 2021 | Publication
International agenda
pensions report IIFA

The investment industry and policymakers must co-ordinate efforts to promote funded retirement saving and improve financial literacy to ensure that billions of people can live comfortably in their later years and, in the process, ease the fiscal pressure on governments. Financially-literate individuals are more likely to make better-informed financial decisions and to understand the benefits of long-term investments. 


To foster funded retirement saving, policymakers must provide incentives – such as innovative tax measures and pro-active regulation of disclosures and plan design –including allowing access to the diversified range of investments that funds offer. 


Those are the key messages of a report by the International Investment Funds Association (IIFA), which represents the global regulated funds industry.


The report, 'Better Pensions, Better Lives: How investment funds can help individuals saving for retirement and reduce the fiscal pressures on governments', is unique in combining the expertise of national funds associations across North America, South America, Europe and Asia-Pacific.


José Carlos Doherty, chair of the IIFA, said: “State pensions are increasingly under strain and it is widely recognized that state pensions will not be able to provide the benefits of the past. 


“The growing emphasis on funded pensions should, in time, ease the pressure on households and government fiscal accounts alike.”


When governments are exploring new initiatives to strengthen their pension systems, they should consider the positive role that investment funds, and the asset management industry as a whole, can play in helping people to diversify their sources of retirement wealth and support a funded pensions world.


The report finds that funded pensions have expanded at an exponential rate in the past 20 years, with investment funds playing an increasingly important role.  Returns generated by investing in capital markets via investment funds have proved far higher over the long term than saving through bank deposits or government bonds, which is why the investment industry has become the rock on which many modern pension systems are now built.


The key findings and recommendations from the report are:


  • Education is critical to promoting retirement security. Financial education around investment basics and the importance of saving for retirement is already taking place through a range of channels (e.g., schools, universities, governments, regulators, financial services firms) and formats (e.g., pamphlets, seminars, webinars, websites, interactive tools). Increasingly, governments, employers, plan sponsors, and financial services firms are employing technology to engage savers and tailor educational messages to individuals. Financial education efforts must be sustained and stepped up.


  • Policymakers must ensure that incentives are in place. Targeted tax incentives encourage citizens to contribute to defined contribution (DC) schemes and personal pension plans. Plan design features, such as automatic enrolment and life-cycling default investment strategies, play a key role in attracting new retirement savers.


  • Funds help pension savers build wealth. Investment funds offer professionally-managed, cost-effective, diversified investment solutions to help savers achieve their financial goals. By providing asset allocation and diversification across sectors, regions and asset classes, including access to alternative investments and ESG-focused strategies, funds can help savers to build stronger future retirement income.


  • Funds are robustly governed. Strong levels of governance are incorporated into the regulated investment industry in jurisdictions across the world, protecting pension savers from theft and fraud. Investment industry professionals have recognised qualifications which facilitate expert investment management, and good operational management too. Across the world, the fund industry is highly-regulated, and funds are structured to comply with prescribed investment, operational and ethical rules.


  • Funds are easy to access. Investment funds are readily available for investors to buy in nearly all countries. They have low minimum investment thresholds and their costs are constantly falling thanks to competition between fund managers and the sheer scale of the investment industry. Funds are simple for investors to buy and are transparent – giving investors regular updates on where their money is invested and how it is performing.
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