BELGIUM - Belgian employers over-estimate the benefits they provide to their employees so failure to take appropriate measures could result in a pension crisis, consultancy firm Watson Wyatt warned today.
In a survey covering 45 employers and 61 plans, the consultant found the total retirement income of most employees who retire at age 60 would barely reach 50% of their final salary while the retirement income at age 65 goes up to 58% of the final salary.
This is in contrast to the expectations of the majority of employers, who estimated their plan will reach around 70% of a person's final salary, so the consultant fears DC pension provision will fail to deliver the adequate retirement income over the next 15 years for a significant proportion of employees.
Sven Schroven, a consulting actuary at Watson Wyatt, warned "[employers] have to start realising that a comfortable retirement will not be obtained," adding the firm expects retirement income to be lower than anticipated for the majority of people.
Companies could therefore face difficulties in managing their Belgian workforces as employees decide may decide they do not have enough income to retire on and therefore are forced to continue to work, creating both financial and people management problems.
Watson Wyatt also noted beyond a good review of legal compliance, there is a general lack of employer governance, particularly in relation of risk and benefit assessment, as well as low employee engagement.
Secondly, many Belgian DC plans are insured via the so-called 'Branch 21', under which insurance companies offer a guaranteed investment return on DC account balances.
Branch 21 group insurance products therefore dominate the DC market in Belgium, as there is the belief they can avoid unpleasant surprises when stock or bond markets fall.
According to Watson Wyatt, however, this will result in high long-term costs and low retirement income, as around 50% of employers never assess the potential effects on expected benefits and inherent risks of adopting a different investment strategy.
Schroven commented: "A reconsideration of the investment strategy - in particular looking at investment strategies away from branch 21 and pure bond-style investments - is important. Employers should think creatively around investment strategy, aiming at better long-term perspectives with a fair control of the short-term risks."
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