Advice key for defined contribution plans


By Kate Kachor

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A global survey into the behaviours of retirees receiving benefits from defined contribution (DC) plans has found the provision of financial advice is needed more than ever before.

The "Melbourne Mercer Global Pension Index" found most retirees who benefited from DC plans had been faced with risks that had not been experienced by the previous generation of retirees.

One of the most fundamental changes had been the shift from employer-sponsored defined benefit schemes to DC plans, it showed.

While the index was unable to pinpoint the specific risks for each country, it found the overreaching reasons for the global trend included the desire by employers to reduce risk, changing workforce patterns and increasing regulation.

“It is apparent that most retirees receiving benefits from DC plans confront several risks they have not faced before as individuals, including some that previous generations of retirees did not have to address,” the findings of the index, released yesterday, revealed.

“The importance of personalised financial advice for retirees from these plans is now greater than ever before.

“Yet the conversion of DC benefits into adequate and sustainable retirement incomes remains a largely unresolved problem in many countries.”

The index, now in its fifth year, found more needed to be done to combat the challenges and risks associated with the dramatic changes in the global pension world.

“There needs to be fundamental change. We must focus on the provision of retirement income – after all, that is the purpose of pensions,” it said.

“This income must be delivered from an efficient and fair framework that is sufficiently robust to cope with the changing conditions that lie ahead."

It found there was an urgent need to find a “better balance” between the individual orientation of a DC plan and a collective, or pooled, approach, which allowed for the sharing of risks within and between generations.

“Such developments should not just focus on adequate incomes but also ensure that the system is sustainable and has integrity over many years,” it said.

The index is an annual report based on pension fund research from 20 countries.

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