The chart above should be of great interest to anyone who hopes to retire on a pension. It should also be required reading for any executives planning their business portfolio for the future.
Published by the Financial Times, it shows the actual performance of pension funds in selected OECD countries since 2001:
• The blue quadrants show the 2001-2010 annual percentage return
• This is ranked in order, so Chile is best with 5.3% per annum
• The USA is worst, with a negative return of -1.3% per annum
• Yet most pension funds still assume 6%+ as their target performance
• The red quadrants show performance since the crisis began in 2007
• This shows pension fund returns are getting worse, not better
• Only Germany has seen a positive performance, up 3.3% per annum
• All the other countries have seen negative returns
This data confirms a key message from Boom, Gloom and the New Normal:
Life expectancy has increased, but our thinking about pension schemes hasn’t adapted. The money we now save is still only enough to pay for a few years of retirement, not a few decades.
29% of the Western population (272m people) are now in the New Old 55+ age bracket. And their numbers are rising all the time, as the BabyBoomers are a much larger generation than their successors.
This means lower economic growth is inevitable. It also means people’s expectations of their likely retirement income are often wildly over-optimistic.
In turn, this means companies need to focus on affordability, and real needs. Their customers might want to continue buying semi-luxury products. But ‘wanting’ is not the same as ‘needing’.