Workers should not be incentivised to save into expensive third-pillar pension systems, according to Keith Ambachtsheer, who criticised a number of reform proposals put forward by former PIMCO co-CIO Mohamed El-Erian.
Ambachtsheer argued it was harder to think of a “worse” policy initiative than to improve pension savings rates by nudging savers into such third-pillar options, and added the fees associated with such options could cost savers significant sums over several decades.
Responding to an opinion piece by El-Erian, who remains chief economic advisor at Allianz following his departure from PIMCO, the academic also said that it was often the wealthy who believed it benefitted less affluent workers to save into third-pillar arrangements.
However, in a policy paper he argued countries with high pension sustainability ratings – such as those granted under the Melbourne Mercer Global Pension Index (MMGPI) – offered means-tested state pension arrangements, thereby removing the incentive for such third pillar savings.
“The other thing countries with high MMGPI scores do is to facilitate high levels of participation in Pillar 2 pension plans, and to create cost-effective, fiduciary oriented Pillar 2 pension intermediaries,” Ambachtsheer added.
“The combination of these two features ensures broad Pillar 2 coverage, creates measurable ‘value-for-money’ for participants, and eliminates the need for high cost Pillar 3 ‘solutions’. “
The most recent MMGPI saw Denmark, the Netherlands and Australia returned to the top three slots. All three companies offer either a predictable means-tested state pension, a high contributory retirement benefit, or a combination of both.
Ambachtsheer then went on to criticise the colourful language employed by El-Erian, who likened pension systems across the world to the Titanic, believed unable to sink on the eve of its ill-fated maiden voyage.
“Far from being Titanics,” Ambachtsheer said, “these cost-effective, fiduciary oriented Pillar 2 pension organizations are a critical ingredient of sustainable 21st Century capitalism.”