The Quadrillion Dollar Bridge E-Book

Josef Pilger

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 649

Veröffentlichungsjahr: 2025

Beschreibung

Unlock the secrets to successful retirement planning with insights that will revolutionize the way we make financial decisions

In The Quadrillion Dollar Bridge: Retirement Behaviour, author Josef Pilger delves into the complex landscape of retirement , systems, decisions, planning, behaviours and outcome expectations providing vital guidance for policymakers, individuals, retirement and financial services providers. This book addresses the complex challenges consumers, policymakers and providers face today, from navigating investments to making informed decisions that affect the retirement lifestyle for millions. With Pilger's extensive experience in the global retirement and financial services sector, he offers practical solutions designed to empower readers for a more secure financial future.

Packed with research-based insights and actionable strategies, the book dissects the evolving retirement landscape—highlighting how you can better navigate the shift from defined benefits to individualized plans and what he calls “Retirement 2.0”. Readers will learn how to make informed choices that improve their retirement systems, delivery and outcomes, ensuring they achieve lasting peace of mind.

Inside the book:

• Discover how understanding behavioural psychology can reshape investment strategies
• Learn best practices to maximize retirement savings, systems and outcomes
• Explore the interconnectedness of health, wealth, longevity and career decisions in planning for the Golden Years

The Quadrillion Dollar Bridge: Retirement Behaviour is a must-read for policymakers, financial services providers, pension fund professionals, and financial advisors eager to enhance their clients' retirement planning experiences. Empower yourself and your clients today with the knowledge needed to thrive in a complicated financial landscape.

Leseprobe

Table of Contents

Cover

Table of Contents

Title Page

Copyright

Dedication

Foreword

Preface

Charts

Section A: Framing Context

Retirement System Objectives: Purpose and Cultural Framing Expectations

Problem: What Problem? The Governance and Fiduciary Duty

Retirement System Parameters

Section B: Retirement and Financial Well-Being Ecosystem

The Financial Well-Being Ecosystem

Retirement Decision Map

The Unavoidable Statistical Section

The Retirement Memories Map

Why Are Retirement Decisions So Hard?

Financial Literacy and Financial Advice as Silver Bullets?

What Can We Learn from Human Evolution?

Intergenerational Wealth Transfer

Behavioural Economics – Progress at Last?

Retirement Success

Financial Planning Success

Section C: Transform Retirement 2.0 – Defining the Crucial Challenge(s)

Laying the Foundations

The New Brand of Retirement 2.0

The Foundation of Success in Retirement 2.0

Transform: How Can We See What Others Do Not?

A Policymakers’ Balanced Scorecard for Retirement 2.0

Longevity’s Impact on Governments

Section D: Transform Retirement 2.0 – Breaking Down the Challenge(s)

Break Down the Challenge and Challenge Statement

Compare Stakeholders’ Perspectives and Wants

Section E: Transform Retirement 2.0 – Search within the Sector

Searching for Best Practices from Australia

Searching for Best Practices from the Netherlands

Searching for Best Practices from Denmark

Searching for Best Practices from Hong Kong

Searching for Best Practices from Malaysia

Searching for Best Practices from the United States

Searching for Best Practices from Canada

Searching for Best Practices from Chile

Searching for Best Practices from India

Searching for Financial Advice Best Practices in the United Kingdom and Australia

Selected Key Lessons from within the Global Retirement Ecosystem

Section F: Transform Retirement 2.0 – Search Outside of the Sector

The Search for Better Attraction and Engagement

The Search for More Learning about Customer Attraction at Scale

Search for Financial Security-Centric Retirement Advice Lessons

Search for Better Enablement and Decision for Retirement Lessons

Search for Lessons for a Better Ecosystem and a ‘Fulfilled Life’

Learning about the Illusion of Validity

Search for Better Government and Policymaker Interventions

Lessons from the Global COVID Vaccine Journey

Lessons from the Implementation of Obama Care

Lessons from the Kingdom of Saudi Arabia’s Vision 2030 Journey

Section G: Transform Retirement 2.0 – The Options Map

Developing the Options Map Pragmatically

Shift 1: From Retirement 1.0 to 2.0 and ‘Fulfilled Life’ Transformation

Shift 2: From Incremental to Transformative Outcome Architecture

Shift 3: From Process and Choice to Saver Outcome Architecture

Shift 4: From Process to Outcome Governance

Shift 5: From Process and Product to Value-Chain Architecture

Shift 6: From Financial Planning to Advice Outcome Architecture

The Political Test: The $1 Quadrillion Prize of Value Generation

The $1 Quadrillion Prize Journey

Section H: What Do the Six Shifts Mean More for the Golden Years?

Framing the Conversation

Framing Success

The Australian Retirement System

The German Retirement System

The Dutch Retirement System

The UK Private Retirement System

The US Private Retirement System

Section I: International Leaders’ Thinking

Introduction

Andrew Evans, Group CEO, SMART Pensions

Nikki Pirrello, President and Publisher, Pensions & Investments

John Mitchem, Principal, JM3 Projects New York and Co-Founder of Jasper Forum, a Global Retirement Finance Discussion Group

Section J: Conclusion

We Need to Put Humans in the Centre – Finally

One Key Aspect Remains to Manage Transformative Savers’ Outcome Expectations

Suggestions for Future Work

Notes

Index

End User License Agreement

List of Illustrations

Chapter 1

Chart 1 Retirement value chain

Chart 2 Value, vision and mission pyramid

Chart 3 Three decision-making philosophies

Chart 4 Simplified ‘value impact and success’ ledger

Chapter 2

Chart 5 Dimensions of financial well-being

Chart 6 Saver questions across their ecosystem

Chart 7 Retirement decision map

Chart 8 Maslow’s extended hierarchy of needs

Chapter 3

Chart 10 Leveraging corporate strategy for personal choices

Chart 11 Six strategic life areas

Chart 12 Transformation road map

Chapter 7

Chart 17 Sample insights to create transformative value chain outcomes

Chart 18 Stakeholder perspectives and wants

Chart 19 Indicative impact assessment

Chart 21 Generic financial planning business framework

Chart 22 Financial planning business framework

Chart 23 Indicative cost/benefits assessment

Chart 24 Indicative risk/benefits assessment

Chapter 8

Chart 25 Transformational saver outcomes

Chart 26 Indicative country transformation assessment 1

Chart 27 Indicative country transformation assessment 2

Chart 28 Indicative maturity and transformation assessment: Australia

Chart 29 Indicative maturity and transformation assessment: Germany

Chart 31 Indicative maturity and transformation assessment: the Netherlands

Charts 32 Indicative maturity and transformation assessment: the United Kingdom

Chart 33 Indicative maturity and transformation assessment: the United States

Guide

Cover

Table of Contents

Title Page

Copyright

Dedication

Foreword

Preface

Charts

Begin Reading

Notes

Index

End User License Agreement

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THE QUADRILLION DOLLAR BRIDGE

Closing the Retirement Funding Gap by Understanding How Humans Make Decisions

JOSEF PILGER

This edition first published 2025

© 2025 by John Wiley & Sons, Ltd.

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While the publisher and authors have used their best efforts in preparing this work, they make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, written sales materials or promotional statements for this work. This work is sold with the understanding that the publisher is not engaged in rendering professional services. The advice and strategies contained herein may not be suitable for your situation. You should consult with a specialist where appropriate. The fact that an organisation, website or product is referred to in this work as a citation and/or potential source of further information does not mean that the publisher and authors endorse the information or services the organisation, website or product may provide or recommendations it may make. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential or other damages.

Library of Congress Cataloging-in-Publication Data

Names: Pilger, Josef, author.

Title: The quadrillion dollar bridge : closing the retirement funding gap by understanding how humans make decisions / Josef Pilger.

Description: Hoboken, NJ : Wiley, 2025. | Includes bibliographical references and index.

Identifiers: LCCN 2024055005 (print) | LCCN 2024055006 (ebook) | ISBN 9781394332373 (hardback) | ISBN 9781394332397 (pdf) | ISBN 9781394332380 (epub)

Subjects: LCSH: Retirement–Planning. | Retirement–Economic aspects.

Classification: LCC HQ1062 .P55 2025 (print) | LCC HQ1062 (ebook) | DDC 332.024/014–dc23/eng/20250120

LC record available at https://lccn.loc.gov/2024055005

LC ebook record available at https://lccn.loc.gov/2024055006

Cover Images: Bridge silhouette. © Tetiana Lazunova/Getty Images Gold paper. © Katsumi Murouchi/Getty Images

Cover Design by Wiley

Retirement behaviour – understanding how we decide leads to better outcomes

This book is dedicated to my family. My wife and children supported me in learning globally. My mother and father shaped a curious mind. And my grandfather taught me to be accessible and challenge any statement.

Foreword

This is an outstanding book on retirement systems – their historical basis, evolution, challenges and alternative solutions – with all factors and issues comprehensively examined within a rigorous theoretical and practical framework.

The evolution of retirement systems, starting from Germany, the multiple challenges and fixed retirement access ages present the wonder of living longer and healthier lives combined with the declining birth rate – the increasing ‘dependency ratio’. The range of solutions includes increasing the pension access age and the shift away from defined benefit/PAYG solutions towards defined contributions in many countries. The challenges of defined contribution include the design and operation of compulsory, opt-out, incentives and taxes, a lump sum, what to do in retirement, investment and fees and charges, asset managers and service providers, individual decision-making, governance and regulation, and much, much more.

All factors and issues are comprehensively explained within Josef’s blend narrative of consultant, hobby psychologist and Latin taught rigour.

There are few better books that outline such a sweeping and comprehensive analysis.

This is a must for all participants in a retirement system to read and better learn, understand and prepare for change.

In this comprehensive and sweeping analysis, Josef combines his practical global working knowledge from across the world with country-specific case studies and relevant tables, charts and figures.

—The Honourable Nicholas ‘Nick’ Sherry

Preface

Five memories, inflection points and incidents laid the foundation for this book:

My oldest retirement memory

: I was about 10 years old. I joined my grandfather at the bank. With a proud ‘I got my retirement cheque’, he gave me 10 dollars (they were called ‘Deutschmark’ at the time) extra pocket money, and we went for ice cream.

The best investment

: As my father sold his business and retired at the age of 60 years, he contributed a significant portion as a single payment to the German pension in return for an additional handsome indexed immediate lifetime pension. For 27 years, this paid for his living expenses while his grandchildren benefited from his normal retirement and savings.

A fantastic brain

: My youngest son had a stroke at birth. His brain was almost wholly rewired, and he recovered. This sparked my interest in neuroplasticity and human and brain evolution.

Meeting a Nobel Prize Laureate

: In 2016, I attended and spoke at a board meeting in Chicago. A local professor with some interesting perspectives on behavioural economics was also attending. As an ignorant attendee, I asked some questions, which became an excellent discussion. The professor turned out to be Richard Thaler. He laid the foundation for my interest in behavioural economics in retirement and all ecosystem participants. I absorbed publications from Daniel Kahneman, Dan Ariely, Sheena Iyengar and others.

The Laws of Human Nature

:

1

In December 2022, after a board offsite in a great restaurant in Boston. Gaby, one of the board members, gave me this impactful book recommendation. As I recently started listening to audiobooks, this marked the inception of devouring one to two audiobooks per weekend while walking around Washington, DC. I read as many great authors on behavioural economics, psychology, culture, decision making and evolution as possible. This provided ample food for thought.

The other vital ingredients come from practical experience working with many of the best minds in policymakers and public and private sector organisations globally in the pension, retirement, investment, life insurance and financial advice ecosystem. More than three decades of hands-on insights and mistakes across more than 30 countries and cultures leave deep impressions.

All my experience taught me one sobering insight: despite all efforts and billions of financial incentives, no country has sustainably, effectively and efficiently solved all aspects of the retirement and financial well-being ecosystem challenge. Yes, some countries – and people – do considerably better with more savers and assets. But no country nor system has adequately enabled all key stakeholders to sustainably create fit-for-purpose health, wealth and happiness outcomes focused on the time most people still call ‘retirement’.

The problems have been visible for decades, and socio-economic benefits from (fully funded) and well-operating pension and retirement systems are tremendous for all stakeholders. So, why are those decisions so hard? Homo Economicus, visionary politicians, policymakers, trustee boards, as well as public and private sector providers make rational decisions on one of the societies’ most significant challenges. Why is progress so slow, and why is there still so much to do?

These questions build the foundation for the critical question for this book: what can we learn from human and stakeholder behaviour to adapt and improve our decision-making that delivers better financial well-being outcomes across the ecosystem?

I like to follow Albert Einstein’s famous advice2: ‘If I had 60 minutes to solve a problem, I would spend 55 minutes defining the problem.’ We will discuss current barriers, challenges and observations in detail to define the problem we are trying to solve as clearly as possible. For time-poor readers, please skim ahead to the innovation and recommendation parts. For practitioners, I attempt to cover topics as holistically as I can. This will take us often beyond typical actuarial, investment or product aspects. I hope that you see the value added.

We will look at three key components to attempt to provide answers that may point us in the right direction to change behaviour in turn and, over time, deliver better outcomes:

Context

: Statistics, outcomes, pain points and frameworks that build the foundation of the discussion.

Behavioural economics and retirement theory and practices

: A snapshot from my career that may raise better questions leading to refined or new answers.

Practical conclusions and recommendations

: An attempt to blend behavioural economics and neuroscience with deep practical experience across the world of pension, retirement, investments, life insurance, financial advice and their ecosystems, and other industries and practices to provide potential new ideas, techniques or approaches to deliver better and more sustainable stakeholder outcomes.

We learn best from adversity and mistakes. We will see many of them. We will try to be as ruthless as light on a stage that shows every flaw. This is the best foundation for tangible improvement opportunities. Working for decades across many countries and with leading politicians, policymakers and providers enables a unique opportunity to gather ample best practices. Collectively, they form the high bar of what could generate the best saver outcomes. It is almost impossible to discuss pensions and retirement without at least one person trying to interpret some or all of the points in a particular political way. We will only have one unmistakable point at the centre of our discussion: how to reasonably maximise savers’ outcomes. This book has no political motivation or conviction.

I am intentionally making a significant communication mistake in this book. Experienced marketers, such as Richard Shotton,3 indicate that if you have some authority and want to change stakeholder behaviour, you should use a gentle and friendly tone. I can’t promise that I have done that consistently. However, you have the choice to continue reading.

You will also encounter three aspects:

As a consultant, I like charts and frameworks that illustrate points. I hope they add value. Feel free to use and evolve them.

I am, at best, a hobby psychologist. I leverage insights and experience from many experts I cite. My contribution focuses on applying their wisdom to the private retirement ecosystem to enable better outcomes.

My Latin teacher at high school introduced me to the classics and quotes from wise people to stress my points. I hope you like them.

We will cover many observations and recommendations. They are all subjective, of course. However, understanding the different parameters of many private retirement systems and successful strategies and infrastructure from leading systems and providers furnishes the confidence to make the respective comments.

We will see ample questions to stimulate debate and creativity. They are intentional to encourage reflection. Private retirement success is a blend of skillset and mindset. We will see that all our decisions are made within a particular context. As we aim for a global audience, it is impossible to fully and correctly understand and interpret the local context. The reader’s reflections and conclusions will do this to tailor global insights into a regional context that maximises outcomes.

The global private retirement ecosystem must be simplified and dynamic to cover all aspects correctly. In 1885, the German psychologist Herman Ebbinghaus4 conducted research that built the foundation of modern memory research and cognitive psychology. It led to the Ebbinghaus Forgetting Curve, which shows that we forget learned information up to 50% after one hour and 75% after one day. I hope I have not forgotten too many aspects and facts and made too many mistakes. Please do forget those mistakes or gaps quickly.

My goal for this book is to inspire scientific research into the ideas discussed and to encourage practitioners and policymakers to explore these concepts and ideas.

This book is structured into 10 sections:

Framing Context

Retirement and Financial Well-Being Ecosystem

Transform Retirement 2.0 – Defining the Crucial Challenge(s)

Transform Retirement 2.0 – Breaking Down the Challenge(s)

Transform Retirement 2.0 – Search within the Sector

Transform Retirement 2.0 – Search Outside of the Sector

Think Bigger for Retirement 2.0 – The Options Map

What Do The Six Shifts Mean More for the Golden Years?

International Leaders’ Thinking

Conclusion

Each section is enriched with real-life case studies, which provide a tangible connection to the material and enhance understanding of the concepts. Towards the end of the book, several leading experts provide their perspectives on respective countries.

There are three key takeaways I would like you to reflect on when reading this book:

What do we know about the decisions savers must or, better, should make to maximise their financial well-being during their golden years? What is important to them? What do they consider rationally and emotionally, and how do they make these decisions?

What is our culture, mindset, implicit and explicit beliefs, and behaviours as industry executives, experts and policymakers? What are the intended and unintended consequences for all stakeholders? What do we need to do differently to deliver better outcomes?

Time, health and happiness are humans’ most significant assets, while financial means are essential enablers, mainly for economic security, during our golden years. This makes saving, holistically considering and preparing for our golden years one of the most critical life decisions. What should we consider starting, stopping, amplifying and adjusting to deliver transformational outcomes across the ecosystem and generations?

I hope this book assists in integrating emotions into retirement and financial well-being delivery. We must start considering the ‘feeling about retirement’ and all associated risks and contextual aspects through the lens of savers to achieve better outcomes.

Charts

Chart 1

Retirement value chain

Chart 2

Value, vision and mission pyramid

Chart 3

Three decision-making philosophies

Chart 4

Simplified ‘value impact and success’ ledger

Chart 5

Dimensions of financial well-being

Chart 6

Saver questions across their ecosystem

Chart 7

Retirement decision map

Chart 8

Maslow’s extended hierarchy of needs

Chart 9

Maslow’s needs in a financial and non-financial context

Chart 10

Leveraging corporate strategy for personal choices

Chart 11

Six strategic life areas

Chart 12

Transformation road map

Chart 13

The role of government in longevity

Chart 14

The trust equation

Chart 15

Transformation journey 1

Chart 16

Transformation journey 2

Chart 17

Sample insights to create transformative value chain outcomes

Chart 18

Stakeholder perspectives and wants

Chart 19

Indicative impact assessment

Chart 20

Intervention table

Chart 21

Generic financial planning business framework

Chart 22

Financial planning business framework

Chart 23

Indicative cost/benefits assessment

Chart 24

Indicative risk/benefits assessment

Chart 25

Transformational saver outcomes

Chart 26

Indicative country transformation assessment 1

Chart 27

Indicative country transformation assessment 2

Chart 28

Indicative maturity and transformation assessment: Australia

Chart 29

Indicative maturity and transformation assessment: Germany

Chart 30

Social security rates in Germany

Chart 31

Indicative maturity and transformation assessment: the Netherlands

Chart 32

Indicative maturity and transformation assessment: the United Kingdom

Chart 33

Indicative maturity and transformation assessment: the United States

Section AFraming Context

This section provides a set of essential contexts to frame the discussion.

Otto von Bismarck, who masterminded the unification of Germany in 1871 and served as the first Chancellor, is often cited as the father of modern government-driven pension, social security and collective healthcare solutions. His politically motivated attempt as a conservative to prevent the widespread lower-income classes from supporting the growing social democratic movement backfired. Yet, history shows that the Roman government was faster. Almost 2000 years earlier, Roman soldiers were promised a pension in return for successfully serving the empire. In the 1870s, American Express introduced a corporate defined benefits (DB) pension plan followed by many others in the United States and many old-world countries. Bismarck introduced mandatory government-based retirement support for those over 70 years. A Canadian physician, William Osler (1905), put it bluntly: ‘Workers between the ages 40–60 were tolerable because they were “merely uncreative.” But after age 60, the average worker was useless and should be put out to pasture.’ Franklin D. Roosevelt laid the foundation for the world’s largest pension and retirement system with the Social Security Act of 1935. Since the 1960s, many actuaries globally have been ringing alarm bells, showing projections of most Pay-As-You-Go (PAYG) and defined benefits (DB) of both countries and corporations heading towards financial stress generally driven by unexpected longevity progress and underfunding. The proverbial Titanic was heading for the iceberg. The systematic shift to defined contribution (DC) systems was born in many so-called developed countries, while most developing countries skipped the DB step. Augmented by commonly younger populations in developing nations, another critical tenet was established with demographic divergence: a substantial financial tsunami driven by enormous demographic legacies in developed countries.

The accidental US booster came with the Revenue Act of 1978 and the rise of the US Tax code section 401(K). Participation is voluntary for both employers and employees. Often unnoticed with the shift to defined contribution systems such as 401(K), several fundamental by-products were laid down:

Contribution payments wholly or partially by savers;

A vast range of complex and critical decisions now outsourced or required by savers and employers;

Rise of private sector organisations as providers across the pension, retirement, life insurance and investment ecosystem;

Convergence of retail wealth management, financial advice and the retirement world;

The pivotal importance of trustees as stewards of billions, as the single largest asset owner group globally, as large asset managers and as socio-economic and political heavyweights.

In the United States alone, more than $100 billion in tax incentives annually observed unprecedented growth, with more than $30 trillion in assets for retirement. This created a funded risk capital pool looking for growth. Places such as Wall Street and Silicon Valley leveraged the socio-economic spillover effect and contributed to America’s success.

Other journeys followed, including those in Chile, Australia and Canada, for pension, retirement and socio-economic success. More recently, the introduction of National Employment Savings Trust (NEST) in the United Kingdom in 2010, the growth of Secure Choice systems across many US states pioneered by Oregon, Illinois and California, and the upcoming Dutch shift to Collective Defined Contribution mark some of the latest transformational steps in the global retirement world.

What do each of those facts have in common? Each fact points to one or more of the about 100 different fundamental tenets that describe retirement systems. All contribute to varying levels of the success dimensions for different ecosystem stakeholders. Many of those dimensions are both well researched and understood. But a few fundamental aspects do not receive the attention they deserve to deliver better outcomes:

How do stakeholders make retirement and financial well-being decisions?

How can we reinvent retirement and financial well-being to better deal with irrational stakeholders and improve decision-making and outcomes?

What makes up the financial well-being ecosystem, its key stakeholders and critical decisions?

What is the culture and purpose of retirement systems?

What does a generic retirement decision map look like?

What does the decision and outcome track record globally look like?

Why are retirement decisions so hard?

Why are financial literacy and financial advice considered as silver bullets?

What can we learn from human evolution?

How do we measure behavioural economics – progress at last?

How do we define success?

We discuss these topics and aim to answer these questions. We use the simplified retirement value chain for our discussion (Chart 1).

Chart 1 Retirement value chain

Source: Author’s analysis

Retirement System Objectives: Purpose and Cultural Framing Expectations

Simplistically, we differentiate between three clusters of private retirement systems:

Those where private retirement is merely an add-on to the dominant government-funded pension and social security system. Examples include Germany’s Riester or Malaysia’s Private Retirement System. Those who save complement their government pension entitlements.

Those where private retirement is a fundamental pillar and partner to the government pension system. Examples include UK’s NEST or US 401(K).

Those where private retirement is the big brother and provides primary retirement income for a large portion of society. Examples include Australia’s superannuation, the Dutch pension and Chile’s Sistema Previsional.

The differences are more fluid in practice based on different maturity levels and socio-economic context. For illustration purposes, this simplification suffices. Based on these three clusters, objectives, purpose and culture differ as complement, partner or pillar. Yet, at their core, all focus on providing financial security at various levels. What that means in practice and how it is implemented differ considerably. Definitions of purpose, objective and strategy of most government and private retirement systems need to be more specific. Intergenerational equity expectations and other principles make them an almost perpetual perspective. This creates a set of fundamental challenges for all stakeholders, including policymakers, providers, trustees and savers:

Clearly defining the current starting point of financial security;

Expectation management and interpretation of what seems ‘reasonable’ or ‘comfortable’ 5, 10 or 50 years from now;

The best way to get there;

While at the same time, socio-economic and political context change;

Investment markets have their own will.

This feels like asking three lawyers or actuaries for their opinions: in both cases, you can get five answers. Add vested interests from politicians, financial services providers, trustees and union representatives to the mix, and it can feel less predictable than going to Las Vegas. The bad news is that these are only a few of the policy, provider and context complexities on the supply side.

The Chairman and Chief Executive Officer of a large asset manager described in his latest investor letter that the transition from defined benefits to defined contribution has been, for most people, a transition from financial security to financial uncertainty. Is that an oversimplification that may be one bridge too far? Post President Franklin D. Roosevelt’s signing of the Social Security Act and subsequent changes in the 1970s and 1980s, very little has been systematically designed to transform the financial security of Americans in retirement. Most changes appear in hindsight more like what I call ‘management by bumblebee’: you hop from one flower or parameter to the next, but only when the sun shines. Employer-sponsored defined benefits plans carried a lot of the burden that supplemented social security if people made it to retirement. Meanwhile, countries such as Malaysia (1951) or Singapore (1955) established systematic solutions to support retirees’ financial security beyond a government-funded social or pension programme. Many countries, including the United States, never systematically and holistically addressed the problem and kicked the proverbial can down the road. The rapid growth of retiree populations fuelled by baby boomers made it harder to kick further. Did the financial security described ever exist for most Americans? It did exist for some time in a few countries with generous PAYG systems. And the financial insecurity that gradually started to become even larger is self-inflicted mainly by politics. We can achieve financial security through political will, foresight, discipline and tough decisions, as mandates in countries such as Australia, Malaysia, Chile and the Netherlands show. But it comes at the price of paternalism instead of complete agency. Yet, the pinnacle of paternalism includes employer ‘defined benefits’ or generous government-funded PAYG systems. So why do mandates upset so many people?

This brief analysis shows the complexity and the interdependencies between retirement, social, economic and employment cycles, employee benefits philosophy; and politics and vested interests.

Despite the varying levels of additional financial security, the volume of necessary decisions and challenges like financial literacy are similar. Countries starting or those focused on a modest complementary approach have two more complex barriers to overcome. Less public debate and likely retirement literacy create a longer road to adequate attention, and current examples limit understanding of urgency. It is challenging to kick-start the additional savings process at scale if blended with a solid historical reliance on government, paternalism, social contracts or unionism. We later describe the power of mandates or opt-out to overcome these barriers.

One aspect rarely focused on yet foundational is trust. Trust, like culture, fundamentally impacts all stakeholders and their decisions under uncertainty. For the retirement ecosystem with significant supply and demand side uncertainties, long-time horizons, complex and impactful commitments, and personal interpretations, trust is the most underestimated lever when navigating the retirement ecosystem labyrinth. Yet, we know little about its mechanics or impact on the retirement ecosystem. Why is that?

All private retirement systems globally have one common fundamental tenet: the encouragement to save for retirement. Accelerated by the pandemic and selective emergency withdrawals at scale, more policymakers acknowledge the concurrent need for savings for other and more short-term purposes. Mental accounting in different pots is very human. Without unlimited financial means, statistics show that it is not only lower-income earners who often struggle to lock their money away for 40 years. Retirement systems that clearly define their purpose, vision and strategy through the practical lens of modern customer needs and wants are rare. Systems and countries that assimilated this clarity into a well-articulated financial well-being and retirement culture are even rarer. The critical tone from the top and the necessary cultural norms are missing, leaving the ship without a clear course or compass.

Let’s look at two aspects from organisational and business experience and what we might learn about retirement systems, ageing and longevity to improve decision-making and outcomes.

‘Culture eats strategy for breakfast’: This famous Peter Drucker quote generally applies to companies globally. No matter how excellent your business strategy is, your plans will fail without a company culture that encourages everyone to implement it. A good company culture is about how employees behave in critical situations. Applying this logic means a good retirement, longevity and ageing culture is about how savers and ageing people behave in crucial situations. Our analysis indicates we still have a long way to go in probably all countries and systems but with significant differences in progress.

‘A great company culture is when most employees and their managers can deal with pressure, respond creatively and positively to any challenges, and treat each other and their clients with respect and integrity.’ Business research indicates that robust and healthy cultures emerge when people at every level of the organisation feel a true purpose in their work. They do not feel burdened by their work and decisions. They are energised and engaged. When a problem arises, they can work as a team to solve issues and celebrate the success. For retirement, that means the values, beliefs, norms, symbols, language, art, morals, customs, rituals and any other capabilities and habits by humans related to the retirement ecosystem. They give people feelings of belonging and security, which is vital during constant change. They form, evolve and adapt to new environments. Why is a modern retirement culture so influential? Culture is the lifeblood of a vibrant society, expressed in ways we tell our stories, celebrate, remember the past, entertain ourselves and imagine the future. Retirement culture is a crucial element. Our creative expressions help define who we are and help us see the world through the eyes of others. Have we invested adequate time explaining and clarifying the purpose and building an aligned culture? My personal experience indicates a definite ‘No’. The short existence of funded private retirement systems may provide a good excuse. But would you build your house without a clear understanding of the foundation and what type of house you want? My hypothesis: many of our beliefs, norms, values, rituals, stories and memories about retirement are still firmly anchored in the old world of certainty. Policy settings have us retire at a certain age, even if many of us ignore it. We celebrate when someone goes into retirement or cleans their desk. And our stories, like our retirement memories, continue to differentiate between active, slower and inactive phases. What has changed? Nothing? A small step for policymakers is a big step for humanity. And our memories and, for many, our biases are still primarily stuck in the good old days of DB and certainty. At best, this creates confusion for many savers. At worst, it drives significant cognitive dissonance. We will learn more about cognitive dissonance later. I have a simple hypothesis: a fair percentage of what we call saver inertia and financial literacy gaps may be a simple human response to cope with the cognitive dissonance we create for them with our retirement narrative, education and cultural gaps. It reminds me of a famous quote from Utopia by Sir Thomas More,5 ‘For if you suffer your people to be ill-educated, and their manners to be corrupted from their infancy, and then punish them for those crimes to which their first education disposed them, what else is to be concluded from this, but that you first make thieves and then punish them.’ Do we inadvertently promote inertia?

More than 50% of large business and technology programmes fail globally. Another business phenomenon that ignores borders and socio-economic backgrounds is the common failure of large programmes. A 2023 Harvard Business Review article6 highlighted several vital reasons. Often called ‘white elephants’, those projects do not make sense and are mostly not wanted by anyone. The top reasons for the failure of those projects are unrealistic constraints, complexity, lack of effective leadership, poorly defined outcomes and getting the basics wrong. Sounds familiar? How does that compare with our experience in the retirement ecosystem?

Have we adequately shifted from a paternalistic retirement culture in a DB and PAYG world to an individualistic agency culture of defined contribution systems? Many so-called industry experts and policymakers grew up and were educated in a DB and PAYG world. Is a paternalism bias impacting them? The current retirement income debate and evolution in countries such as Australia and the United States seem good examples. In addition to the paternalism bias, we also see an incumbency bias. We jump to existing solutions like life insurance annuity products instead of starting with a fresh approach to innovation. Let’s take the typical customer for a moment: me. I grew up in Germany, selling life insurance and annuity products. Moving to Australia, I was told that traditional life insurance and annuity products had no role in the retirement universe. At that point, we failed to differentiate between accumulation and decumulation. I heard the same story during my US travels. The same products continue to thrive in countries such as Germany and Japan. The growing number of retirees and the pressure to create adequate solutions for retirees in the consumption phase revived the long-assumed dead called annuity. How do these messages resonate with everyday people, savers and financial advisers alike? I would call this a classic case of cognitive dissonance. To be clear, I have nothing against life insurance or annuities. The opposite is the case. Life insurers could play a far more significant role in solving the retirement and financial well-being challenge globally beyond products.

I have no research that supports the impact of culture, purpose, failure of large programmes or paternalism or incumbency bias in the retirement ecosystem. But I also do not have any reason to believe those factors impacting many of the world’s largest and most successful companies would be absent in the retirement ecosystem.

Instead of a clearly defined purpose, vision and strategy through the lens of modern customer needs, we commonly see a high-level focus on the ‘what’ and the ‘why for society’ without articulating the ‘why’ for individuals and what they will get in return other than money. In some countries, we hear the focus on achieving a target income replacement rate at retirement. 60–80% of your last income is often used. Great. You replace one aspect I do not fully understand with a number that feels low. And how do I know how much income I will have 10, 20 or 40 years from now? In my little world, if I pay attention, you have only replaced one colossal uncertainty and a myriad of decisions I cannot or do not want to consider with another uncertainty and another set of questions and decisions (Chart 2).

Chart 2 Value, vision and mission pyramid

Source: Author

Three aspects create significant additional complexity, uncertainty, unintended consequences for all stakeholders and overall socio-economic outcomes.

For policymakers and politicians: The broad impact on voters makes private retirement systems sooner or later a tool and toy for politicians. Tax incentives, fairness gaps for some cohorts or income deciles, cries for more or less government intervention or large retirement asset pools that should be used for specific nationalistic or government tasks are only a sample of interventions globally. Populistic and opinion-based interventions are accessible without a well-articulated purpose, vision, strategy and supporting fundamental decision principles or broadly defined outcome parameters.

For providers/planning and investment certainty: Providers, whether they operate for shareholder profits, for member profits or as a government entity, benefit from long-term policy predictability and expected outcome journeys to make necessary long-term business decisions. We can see a strong correlation between policy certainty and business, distribution and industry infrastructure maturity. Why do we care so much? Predictability is essential for rational business cases and competing commercial investment opportunities. The Head of Retirement of a large provider recently outlined his journey: ‘We tweaked participation assumptions for our new product long enough to ensure we got over the commercial hurdle for our trustee board.’ Commercial shortcuts and rudimentary solutions are common as assets or participation starts small. Poor enablement, poor customer service, tools and higher fees based on limited benefits from economies of scale in administration and investments penalise early savers often on multiple fronts. In later sections, we explore how policy uncertainty leads to underinvestment in delivery and servicing infrastructure, significantly impacting saver participation and efficiency.

For individuals: Retirement is a commitment to defer wages and consumption by up to a century. That requires confidence and trust in critical tenets such as taxation and the long-term purpose. Lack of clarity impacts framing for many savers’ decisions. Participation is lower unless mandatory, albeit opt-out is coming pretty close. Investments are more conservative with shorter horizons, and savings outside the system by those who can afford it are higher. The rationale appears compelling: everyday savers who infrequently engage miss out on their savings decisions’ learning and positive reinforcement effects. Wrong decisions or changes of heart are easy and more frequent. Overall, uncertainty and lack of clarity impact savers and policy outcomes.

Problem: What Problem? The Governance and Fiduciary Duty

The first 15 years of my career allowed me to learn about governance and fiduciary issues by setting up a few life insurance, general insurance and pension organisations. The 2005 assessment to be fit to become a trustee of a German pension trust overseen at that time by the banking regulatory and supervision body anchored my expectations. Over the following years, global experience showed me that governance and fiduciary duty are among the most misleading yet commonly used terms to oversee adequate operations and long-term achievement of set outcomes of pension and retirement funds globally.

The first King report on corporate governance was launched in 1994 in South Africa. It created an integrated approach to corporate governance applicable to all kinds of organisations. It incorporates the usual financial and regulatory aspects. However, it also broke ground on ethical and stakeholder engagement aspects more than 30 years ago. King IV’s7 innovative ‘apply and explain’ approach to drive outcomes in the best interest of members describes leading practices. A few Dutch and Canadians are the closest in their member-outcome-centric governance and oversight. But the scorecard is finance-centric. For defined benefits organisations with employers as sponsors and investment and pension outcomes as overarching success criteria, this seems reasonable and driven by legal interpretations. Yet, at varying speeds, these organisations expand their focus to more holistic member experience and broader Maslow outcomes. Most other pension and retirement systems have one of three types of governance and members’ best interest duty they practise:

‘Keep me out of jail’: This dynamic blend of government, union and employer appointees with legal-centric fiduciary duty generally displays a wide range of suitable strategies, actions and outcomes, mainly driven by fear of breaching minimum legal standards.

‘Keep me out of trouble’: A dynamic blend of appointees focused on meeting legal and regulatory expectations with a long track record of primarily finance-related outcomes. The employer-based US 401(K) duty fits best into this cohort with a wide range of acceptable investment return and fee outcomes.

‘Focus on member financial outcomes’: Australia, the United Kingdom and Chile are among the countries in this cohort.

Almost all private retirement systems focus on the financial aspects driven by net investment returns and fees. This may be driven by generally higher fees and lower net investment returns as new systems commence due to a lack of benefits from economies of scale. Focus on the financial impact of fees from multiple accounts fits this perspective. The finance focus may be a historical bias from the defined benefits era.

Few pension and retirement systems increasingly add saver experience to their scorecards, albeit that is rarely codified. The Australian government is adding adequate income in retirement to its fiduciary expectations. However, history will show what this means in practice.

How does all this add to the discussion of improving members’ decision-making and outcomes? We describe later that members have far broader retirement outcome expectations. Maslow’s hierarchy of needs does not directly include financial security. It raises two structural questions:

Conceptually, all trustees and financial advisers to varying levels and legal definitions have a duty of loyalty, care, diligence or prudence to their members, savers or qualified beneficiaries of acting in their best interest. Let’s assume that financial security and maximising financial outcomes are the simplified core objectives for trustees. Why do we still have so many savers who struggle so profoundly with financial security outcomes if trustees have their interests at heart?

The generic trustee and financial adviser duties primarily focus on ‘my interests’. Yes, many financial advisers have broader discussions. But all quickly focus their efforts on my financial security outcomes or what they or the planning software interpret that to mean. Why do trustees and financial advisers continue their focus almost exclusively on financial security outcomes for most savers if they have their interests at heart?

A commensurate legal debate of effective governance and fiduciary duties generally and in different parts of the private retirement and financial advice world and their implications on saver and member outcomes go beyond the scope of this book. But these two questions may kick-start a broader debate focused on the timeliness of current governance and fiduciary standards for two key reasons:

Legal scope

: A wide range of research sources broadly agree that human expectations of retirement – and life – are fundamentally broader than financial security. As policymakers, trustees or financial advisers, it is hard to ignore that they may not adequately act in the best interests of savers and clients.

Research

: Justin Fox

8

showed three philosophical decision-making schools. Behavioural Economics and Daniel Kahneman, Amos Tversky and many others introduced and focused on heuristics and biases (

Chart 3

). This added invaluable insights that dominate current thinking. However, a different school, driven by a German psychology professor,

9

argues that we should not discuss the heuristics, gut feeling, snap decisions, and other methods humans use as inferior to probability-based verdicts. We find good examples.

10

A leading author

11

said that ‘reliable intuitions need predictable situations with opportunities for learning’. The author’s words raise two critical points. (a) If humans are not as dumb as retirement and financial advice research make them appear, financial and retirement learning and predictable situations may be powerful mechanisms that we are currently not exploring systematically. Are policymakers, trustees and financial advisers leaving known powerful tools to enable better saver outcomes unused? (b) If the author is at least directionally correct, how can we add their insights and tools to the list of good practices to deliver better outcomes?

Chart 3 Three decision-making philosophies

Adapted from [8]

This brief analysis has a simple ‘call to action’ objective: it is too easy to blame savers for their inertia, poor decision-making, limited capabilities or literacy. Policymakers, trustees and financial advisers can and should have sufficient legal encouragement to transform how they help, create more compelling environments and enable tools to help savers make better decisions beyond current behavioural tools.

Retirement System Parameters

Harrisburg is a great country town and the US state capital of the Commonwealth of Pennsylvania. I remember my first visit to Harrisburg to discuss my experience related to the draft of pension reform legislation that led to Senate Bill 1, 2017. I asked my assistant in Sydney before the US visit to print the document. Only after reading most of the 24-hour flight to New York and the 4-hour train trip a few days later to Harrisburg did I manage the 1000 pages of paper. No wonder that reforms often go nowhere. A good friend educated me that much of Pennsylvania’s legislation evolved like a historic city: one layer on top of the next. A blend of Swedes, German and Irish settlers followed the open-minded English William Penn soon after he established the Province of Pennsylvania.

The basic tenet of most funded government-driven retirement systems is some form of legislation often referred to as a retirement system both on the state or Commonwealth and federal levels beyond the United States. It is generally a historically evolved blend of social, product, investment or benefits and taxation rules embedded in varying forms of governance, employment, consumer protection and delivery structures. The pandemic drew attention to two previously rarely discussed parameters: withdrawals for financial hardship and other financial needs. Most countries with one or more underlying forms of government pension and social support add a layer of complexity to how those systems interact. As for the world’s most extensive private retirement system, US 401(K) was not even designed initially. It was focused on high-net-worth individuals. As an accident, it got scaled by commercial interests that also met a broader social need as defined benefits retreated. It got retrofitted to enable smoother scaling. Elaborating on these structures, their inherent complexities and country-specifics would fill a book per country. The good news is relevant for decisions in private retirement and pension and retirement systems, which, more broadly, are a set of around 100 key parameters. Like volume leaver on your stereo or device, each parameter may have different positions leading to different outcomes. Some parameters lie in contribution rates or years of contributing, and investment returns have a sizeable positive correlation; leakage or substitution products are negatively correlated. Policymakers, providers, financial advisers and their respective sales and marketing teams provide a large volume of information to help savers make the necessary, informed decisions over their lifetime. How they are presented, communicated and understood adds another layer to enable the best decisions and outcomes for individual savers. Most of that information has minimal specificity to most socio-economic and all behavioural, cognitive and learning characteristics of individual savers due to the data. Chart 4 provides a high-level parameter overview.

Chart 4 Simplified ‘value impact and success’ ledger

Source: Author Analysis

In response to this complex universe of information and necessary decisions, policymakers, providers, marketers and financial advisers focus to varying degrees and success on different architectures that support better outcomes:

System, policy and industry governance architecture

Provider and provider governance architecture

Choice and product architecture

Distribution and advice architecture

Data and information architecture

Payment architecture

Outcomes architecture

System, Policy and Industry Governance Architecture

Starting in 2002 and followed by the UK government’s 2006 white paper ‘Security in retirement: towards a new pension system’, the UK’s Pensions Commission is one of the best cases of system, policy and industry governance. It led to the Pensions Act of 2008 and the set-up of NEST. The ‘Joint Industry Group’, representing most of the trustees of the Hong Kong private pension system MPF in 2012, is one of the best examples of voluntary industry governance. The industry gathered benchmarking information to work with the regulator and government to influence change. Unfortunately, none of these governance frameworks survive with the sole task of governing the systematic evolution of pension and retirement systems and the associated stakeholder and ecosystem elements. The absence of this master steward or custodian leads to fragmentation and misalignment of messaging. The Dutch, Australian and Hong Kong regulators responsible for pension and retirement are probably the closest to enabling the evolution of long-term systems and outcomes. Evaluating the specific impact on savers, trust, culture, and behaviour is complex. However, it sets a bad precedent for effective long-term decision-making and outcome focus for savers. Some would call this the tone from the top.

Provider and Provider Governance Architecture

Provider architecture describes the method and ecosystem of providers qualified to effectively and efficiently deliver all the legal, policy and saver expectations. That would be a wonderland called saver expectations. In practice, the delivery focus is on ‘collective’ and ‘best efforts’, which are pervasive terms that leave significant room for interpretation and vested interests. Comparatively high fees, standardised products, large volumes of inactive or ‘lost’ saver accounts, a wide range of ‘adequate investment return interpretations’ and commonly limited focus on effective saver enablement, advice and saver and employer experience leave significant room for better saver outcomes globally.

In a separate section, we discuss the standard structure of trusts in Anglo-Saxon countries based on English law, trustees and fiduciary duties. Master trusts in countries like Germany evolved from here. Other countries use corporation structures with boards to fulfil similar fiduciary roles of oversight, insight and foresight to maximise saver or member outcomes. The US 401(K) and Japanese NISA systems build on a different model that evolved from corporate employer-defined benefit plans. The plan sponsor holds the fiduciary duty. In practice, what sounds like a universal concept delivers dramatically different saver outcomes even within one country. Yet, all are always supposedly acting in my prudent or best interest. We later discuss fiduciary duty and provider governance.

Choice and Product Architecture

Choice architecture is how various retirement system choices are presented or softly predetermined in the case of defaults. Behavioural economics shows that this can significantly influence decision-making and outcomes. Richard Thaler and Cass Sunstein introduced the concept in their 2008 book,12Nudge. The choice architecture shapes the decision environment to guide savers towards socially desirable outcomes. This libertarian paternalism assumes that individuals can be nudged to better choices without restricting options or significantly altering economic incentives.

The conceptual part of choice architecture is compelling. Yet, practical applications across the vast range of choices globally show that architects primarily focus on addressing significant individual decisions rather than on a typical saver life cycle and the complexity across the ecosystem. Focusing on mandatory joining in Australia and opting out in the United States or United Kingdom are good examples. Those mechanisms solved the most significant choice decision: to start saving. Yet, savings persistence results in 401(K), poor choices post-UK abolishing mandatory annuitisation, broad struggles with retirement income, or more holistic ecosystem mechanisms show the need to rethink.

In practice, they are mapping necessary decisions and aligning how to present best which information in what way and order has become an essential process of effective choice architecture to enable better decision-making and outcomes. This allows for systematically structuring and systematically breaking down or pre-setting many choices. Mandates to join and opt out have become the most critical architectural components for the success of private retirement systems.

Product architecture, as a subset of choice architecture, is how various product components and choices, including investment and ‘income in retirement’ choices, are designed and presented to all or specific cohorts. It also contains other product choices in some countries and systems, including life insurance or disability. Choice and product architecture have five significant gaps through a practical and global lens:

Focus:

Most modern private retirement systems use some form of choice architecture. Application varies between countries and across a myriad of decisions. However, only some countries cover the entire decision ecosystem. This gap has a fundamental risk. It feels like walking across an icy river: after the tremendous effort of walking across the ice, you still can die or seriously injure yourself by finding that you can spot thin ice. In savings terms, one wrong decision to take a lump sum and enjoy the money or move to a poor investment can destroy years of hard work. Two simple examples may illustrate this. The US retirement world uses the most nudges. However, the absence of the critical choice of provider leads to a highly commoditised environment with significant implications for savers. Each job change forces the saver to revisit all savings choices. This creates unnecessary additional complexities for the savers and their choices. By design, it favours inertia. Also, reallocating those savers into higher fee options in some cases erodes their balances, leading to significant volumes of lost accounts. Vested commercial interests ensure that relevant policy changes fail. The Australian retirement system introduced the choice of provider in 2006. Ballooning lost accounts with significant fees encouraged the government to legislate, with some smaller intermittent steps in 2021, the stapling of savers to their providers even when they change jobs. Introducing this behavioural mechanism in 2006 would have added billions of dollars to savers’ outcomes.

Scope:

Some leaders expand their focus, including short-term savings in their choice architecture. However, this may indicate that policy architects overestimate the separation bias of mental accounting introduced by Richard Thaler. In practice, many people may put far greater subjective value to money and less compartmentalisation to income and spending, particularly in difficult financial situations. It is crucial to systematically expand the scope of choice architecture and align it across the financial ecosystem. This alignment will enable better outcomes and ensure a more effective and efficient financial system. In places like the United States, with enormous credit card and education debt, this may already make significant differences in net saver’s outcomes. A comprehensive and fully aligned choice architecture across the financial well-being ecosystem may be desirable from a net outcome perspective, particularly for lower-income cohorts. However, the political pressure, vested interest and paternalism resistance to drastically expanding the nudging scope across the ecosystem will make such an endeavour likely a white elephant.

Definition of ‘good’: