Ageing populations will continue to place an increasing burden on social security systems around the world. In response, countries have reacted in a variety of ways.
Since the late nineties, pension reforms in many countries have included an increased reliance on funded pension systems, sometimes privately managed. As many countries proceed with additional reforms, pension funds, pension insurance contracts and other forms of retirement savings are likely to expand at a great pace. These reforms are significantly changing the way that responsibility for retirement income is shared between individuals, employers and governments. Hence, pensions are an extremely important component of employee benefit schemes today.
But ageing populations and their direct impacts on the labour market – the shortage of qualified personnel and new working habits, among others – are not the only factor impacting the employee benefit business. Increasing globalisation and urbanisation, advancing technology, the changing regulatory environment, and a volatile economic situation are heavily and constantly affecting the world of employee benefits, and in particular employee benefit pension schemes.
Beyond these key factors, we see several major trends emerging in the employee benefits environment:
1: Growing market and business potential for pensions
With the shift of responsibility for benefit provision from the state to corporations and individuals, and driven by employees’ awareness of the need to secure sufficient retirement savings before and after retirement, employee benefit pension schemes are growing in importance.
Additionally, the rise of new and different sub-populations with very specific needs and interests (e.g. the 50+ segment, highly qualified professionals emigrating to new countries, increasing female employment in industrialized and emerging countries, expatriates, etc.), is further driving the demand for new retirement and risk solutions.
2: Customer centricity gaining in importance
Anticipating, understanding and meeting the ever-changing needs of multinational clients, while creating mutually profitable relationships, is crucial.
Multinational clients today not only expect flexible employee benefit insurance solutions from a local player, they also want a new generation of solutions (e.g. flexible liquidity planning, wealth creation and protection, longevity assurance, elder care, consultancy, services and affinity services) offered by global players and tailored to meet the new needs of their employees, and their particular global organisations and corporate cultures.
3: Innovation, efficiency and quality
Product and process innovation, and the use of new technologies to increase service and information speed, efficiency and quality in all parts of the value proposition chain, are required to stay competitive.
Customised, simple, transparent and cost-efficient regional and global pension and risk solutions are in demand, backed by professional expertise and experience in a broad range of disciplines (cross-border insurance, wealth creation and protection, asset management, corporate governance and compliance, etc.).
4: Increased interaction with governments to develop new employee benefit solutions
The interaction with and development of state solutions will be a major driver for the evolution of all types of employee benefit solutions (retirement, risk, health and dependency coverages), although this will not always be optimally supported by legal and political environment.
In the majority of countries, participation in privately funded pension plans is not mandatory. In a perfect world this would not cause too much trouble, as people would enrol as appropriate. But in reality, the complexity and non-transparency of the retirement challenge tends to confuse people. Governments have an important role to play in fostering private retirement savings. And private insurers need to rise to the retirement challenge together with governments, by developing new employee benefit pension solutions.
5: Increased corporate governance rules and complexity
Most company pension plans have historically been defined benefit plans. But many companies have made promises they can no longer afford to keep, as they underestimated the extent of their liabilities and are now confronted with sometimes massive underfunding problems. The volatile equity market, the introduction of new international accounting standards, and increasing pension regulation have further aggravated the problems.
The priority of corporations today is to reduce the existing funding gap and complexity, and to strike the right balance between costs and benefits for the future, while staying fully compliant with corporate governance rules. Specialisation and expertise are called for, as employers need to provide pension plans that comply with pension and life insurance regulations, social and labour laws, and tax rules that are country-specific and highly diverse.
The retirement challenge
Determining how much to save for retirement is a challenge. It is virtually impossible for prospective retirees to anticipate how long they will live, or predict their health care expenses, or quantify the future impact of inflation.
To meet these challenges, governments are introducing additional reforms to their pension systems (see the articles on pension reform in India and Taiwan in the Country News section). And providers are introducing new products and services, or adapting existing solutions to their changing market environments (see the articles on Danica Pension, Swiss Life and Unum Ltd. in the Network Partners News section). Some are organising panel discussions with personalities from the public and private sectors to address and discuss current problems and possible solutions (see the article on Swiss Life Pension Day 2008 in the Network Partners News section).
There is no universal or single answer to the challenge. The demand for new solutions varies from country to country, and is largely determined by needs, preferences, the regulatory environment, government programmes and market conditions. In addition, global and regional solutions must always comply with local social, labour and tax laws, which makes finding the right response even more challenging.
Our clients and business partners can be confident that the Swiss Life Network will continue to monitor all the issues and trends currently affecting employee benefits, and that we are committed to increasing our joint efforts to meet the needs of our clients both today and in the future.
But ageing populations and their direct impacts on the labour market – the shortage of qualified personnel and new working habits, among others – are not the only factor impacting the employee benefit business. Increasing globalisation and urbanisation, advancing technology, the changing regulatory environment, and a volatile economic situation are heavily and constantly affecting the world of employee benefits, and in particular employee benefit pension schemes.
Beyond these key factors, we see several major trends emerging in the employee benefits environment:
1: Growing market and business potential for pensions
With the shift of responsibility for benefit provision from the state to corporations and individuals, and driven by employees’ awareness of the need to secure sufficient retirement savings before and after retirement, employee benefit pension schemes are growing in importance.
Additionally, the rise of new and different sub-populations with very specific needs and interests (e.g. the 50+ segment, highly qualified professionals emigrating to new countries, increasing female employment in industrialized and emerging countries, expatriates, etc.), is further driving the demand for new retirement and risk solutions.
2: Customer centricity gaining in importance
Anticipating, understanding and meeting the ever-changing needs of multinational clients, while creating mutually profitable relationships, is crucial.
Multinational clients today not only expect flexible employee benefit insurance solutions from a local player, they also want a new generation of solutions (e.g. flexible liquidity planning, wealth creation and protection, longevity assurance, elder care, consultancy, services and affinity services) offered by global players and tailored to meet the new needs of their employees, and their particular global organisations and corporate cultures.
3: Innovation, efficiency and quality
Product and process innovation, and the use of new technologies to increase service and information speed, efficiency and quality in all parts of the value proposition chain, are required to stay competitive.
Customised, simple, transparent and cost-efficient regional and global pension and risk solutions are in demand, backed by professional expertise and experience in a broad range of disciplines (cross-border insurance, wealth creation and protection, asset management, corporate governance and compliance, etc.).
4: Increased interaction with governments to develop new employee benefit solutions
The interaction with and development of state solutions will be a major driver for the evolution of all types of employee benefit solutions (retirement, risk, health and dependency coverages), although this will not always be optimally supported by legal and political environment.
In the majority of countries, participation in privately funded pension plans is not mandatory. In a perfect world this would not cause too much trouble, as people would enrol as appropriate. But in reality, the complexity and non-transparency of the retirement challenge tends to confuse people. Governments have an important role to play in fostering private retirement savings. And private insurers need to rise to the retirement challenge together with governments, by developing new employee benefit pension solutions.
5: Increased corporate governance rules and complexity
Most company pension plans have historically been defined benefit plans. But many companies have made promises they can no longer afford to keep, as they underestimated the extent of their liabilities and are now confronted with sometimes massive underfunding problems. The volatile equity market, the introduction of new international accounting standards, and increasing pension regulation have further aggravated the problems.
The priority of corporations today is to reduce the existing funding gap and complexity, and to strike the right balance between costs and benefits for the future, while staying fully compliant with corporate governance rules. Specialisation and expertise are called for, as employers need to provide pension plans that comply with pension and life insurance regulations, social and labour laws, and tax rules that are country-specific and highly diverse.
The retirement challenge
Determining how much to save for retirement is a challenge. It is virtually impossible for prospective retirees to anticipate how long they will live, or predict their health care expenses, or quantify the future impact of inflation.
To meet these challenges, governments are introducing additional reforms to their pension systems (see the articles on pension reform in India and Taiwan in the Country News section). And providers are introducing new products and services, or adapting existing solutions to their changing market environments (see the articles on Danica Pension, Swiss Life and Unum Ltd. in the Network Partners News section). Some are organising panel discussions with personalities from the public and private sectors to address and discuss current problems and possible solutions (see the article on Swiss Life Pension Day 2008 in the Network Partners News section).
There is no universal or single answer to the challenge. The demand for new solutions varies from country to country, and is largely determined by needs, preferences, the regulatory environment, government programmes and market conditions. In addition, global and regional solutions must always comply with local social, labour and tax laws, which makes finding the right response even more challenging.
Our clients and business partners can be confident that the Swiss Life Network will continue to monitor all the issues and trends currently affecting employee benefits, and that we are committed to increasing our joint efforts to meet the needs of our clients both today and in the future.