Last week, Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, reported heavy losses in the quarter ending December 2018 reaching $136bn (or 9.1%). Alexei Okhorzin from Credit Bank of Moscow writes
Whatever the causes of this decline, every piece of news that has something to do with pension coverage receives greater prominence against the backdrop of the upward life expectancy trend in the world.
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According to the study by the Institute for Health Metrics and Evaluation published in The Lancet in October, the global human lifespan is to grow by an average of 4.4 by 2040. Furthermore, 59 countries are expected to surpass a life expectancy of 80 years.
This sounds encouraging; however, it also presents a challenge. Ageing populations, which is an obvious consequence of this trend, prompts various sectors of the economy to search for ways of efficient adaptation – including the financial sector. A number of economies (such as Australia, Denmark, Finland, Israel, Sweden) already offer the public a comprehensive view of all their pension savings using specialised information portals – pension dashboards. The service is planned to be introduced in the UK as well. The first version is set to launch this year and the platform will accumulate data on all pension schemes a citizen is part of.
In spite of criticism of the project’s imperfections at its current stage emanating from some industry experts (including Steve Webb, formerly Minister for Pensions), professionals appear generally positive about the idea behind this initiative. It is expected to bring real benefits to populations of retirement age: the Pensions Policy Institute found that 62% of UK adults have multiple pensions. Among them, almost one-quarter (21%) are aware of having at least one lost pension pot – let alone those unaware. The task of special online aggregators is thus to prevent savings from being lost.
Meanwhile, this is rather a minimum target, while the question of how to build up pension savings is by no means less relevant. In Europe, for example, this issue is dealt with by pension funds, though this option cannot claim universality. The data published in Moneyfacts UK Personal Pension Trends Treasury Report shows an increasing withdrawal rate of people regularly accessing their pension pots, rising from 4.7% in 2016/17 to 5.9% in 2017/18. Experts attribute this trend to the growing freedom of individuals managing their pension savings.
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By GlobalDataIt has to be noted here that pension funds, however profitable for depositors, occasionally make pretty unfavorable headlines – not least because of how these funds administer the entrusted savings. For instance, the Dutch civil service pension fund ABP until very recently invested in nuclear arms and tobacco manufacturers – only as late as 2018 did it announce its decision to sell the corresponding assets worth around €3.3bn amid “changes in society.”
While an alternative way to multiply savings – using banking products – seems obvious, they do not always receive high marks from experts either. According to AJ Bell, (a British company offering investment platforms and stockbroker services) roughly £3bn of pensions is “languishing” in low yielding bank accounts.
In effect, this means that the banking sector risks losing a substantial part of individual deposits if it proves unable to come up with attractive pension programmes. Russia is among the countries sharing this view although it is not in the “List of 59” mentioned above. “Every year, the number of retirees in Russia increases by one million. As a rule, these are socially active people – they work, travel and live a full life. They are very good at running their own finances”, says Alexei Okhorzin, director of the retail product department at Credit Bank of Moscow (CBOM).
This circumstance draws increasing attention to people of pension age as a substantial share of customer base, driving forward the creation of special banking products. One of the ways to adjust to demographic changes is reconsidering product lines with a focus on deposits with higher interest rates. In some cases, banks even revise the initial rates further upwards. Besides, pension product portfolio of banks is Russia includes low-maintenance cards and general purpose loans for seniors. “We see that this is a promising audience that needs an individual approach, which is why we are going to offer complex servicing to retirees in the near future that will fully meet their needs”, comments Okhorzin.
Diversifying product ranges for elderly people reflects the firm intentions of banks to act on the time-tested truth: it may take months to find new customers and only seconds to lose existing ones. If banks – whether in Russia or in Western Europe – are to be on par with pension funds in the future, they will have to prove flexible and able to respond to demands of a specific social group.
