These underlying issues will force pension plans into reform and require increased contributions from members and sponsors to maintain private plans, the study indicates.
“The longer it takes for economic activity and returns on investment to revert to pre-crisis levels, the more acute the challenges in our pensions sector will become,” explains Maila. “The focus on low interest rates has obscured the real issue, which is the length of time advanced economies are taking to recover to their historical rates of economic growth and job creation. Given these research findings, it is only prudent risk management to prepare for the possibility of rates remaining low for a while longer.”
Though Freedman won’t predict how long the low-interest trend will last, he recommends clients respond to the current climate by having simplified retirement plans in place with firm goals a year from now, five years from now and into retirement.
“The low interest rate is the risk and is a significant factor on returns on pension plans,” he said. “Hopefully, you (the investor) have a good plan that is diversified, you are spending within your means and not going into debt too much.”