Life After Full-time Work Blog

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#20: Collective Ways To Help Employees In Retirement Planning

These days the retirement scene is changing, around the world. More and more, the onus is placed on individuals, rather than on pooled arrangements. But it’s possible for new forms of pooling to be made available by employers, associations and unions, and they would help employees enormously.


Our session at the World Pension Summit focused on the role of employer, in these changing times, in retirement planning for employees. In discussing these ideas after I returned home, I was reminded that employees can belong to many groups – not just their employer, but also to employer associations and unions – and it’s the collectivity that’s the key to providing pooled solutions. So in this post I generalize to the collectivity responsible for the retirement arrangements.


Remember the traditional “three pillars” on which retirement finance is based?

The first pillar is the state pension, increasingly under stress these days as we live longer and have fewer children. But that’s not my focus here.

The second pillar is workplace arrangements. Those are changing rapidly from “defined benefit,” under which you receive a guaranteed amount of retirement income for as long as you live, to “defined contribution,” under which you have an account in which you accumulate assets, and typically you take it as a lump sum on retirement and go your own way.

The third pillar is personal saving. And here of course you make your own arrangements.

So it’s easy to see how “do it yourself” is coming to dominate retirement.

It doesn’t have to be that way. Here are some ideas that collectivities can implement, to help their plan members.

They’re based on ideas from the old second pillar with its defined benefit. This had two huge advantages for the members:

  • It removed the impact of uncertain individual longevity. How long does your money need to last? It doesn’t matter; your retirement income is guaranteed to last as long as you do. This is typically a retiree’s greatest fear, removed.
  • It substituted institutional investment experience for individual investment inexperience. Individuals are typically not knowledgeable about investing. But the fiduciaries of the defined benefit arrangements typically are, and make more suitable decisions.

Overall, the cost of those retirement arrangements are dramatically less expensive, for two reasons:

  • It’s only necessary for an individual to save enough money to last an average lifetime, not the let’s-be-safe idea of investing for a longer-than-average horizon.
  • Institutional investment arrangements are much less expensive than individual ones.

All those old advantages can be brought back, to benefit individuals in the new world. I’ll explain how, after I explain why it’s so very important.


First, a little-known fact, one that I’ve been writing about for many years, since I discovered it when planning for my own retirement. It’s that, after age 75, longevity uncertainty has the biggest financial impact on retirees. What does that mean?

Investment uncertainty is something we understand. We know we can invest for safety and certainty, or we can invest for growth. Investing for growth can be scary, because we’re unsure what the outcome will be. Of course, we hope it will be favorable – and more often than not, it is. But it’s uncertain. The outcome could be good, it could be bad. One way that techies have devised to measure the extent of the uncertainty is to compare the range of possible outcomes to the best expectation of the outcome. For example: after a specified number of years, you could reasonably expect to receive $100 from Investment A, give or take $10. Or, from Investment B, $100 give or take $30 – and that comparison makes it clear that Investment B is more uncertain, more risky, than Investment A.

We can think of longevity uncertainty in the same way. We can calculate the amount we need to accumulate in order to lock in our desired spending for any given horizon. But our lifetime is uncertain. We obviously need less if we don’t live as long as average. And we need more if we live longer than average. We can express the effect of this uncertainty in our longevity in the following way: at our age, we need to save $100, give or take some amount. Of course, the question is: give or take how much?

I won’t go into the details, but it turns out that the “give or take” amount becomes greater, once you’re age 75 or older, than the “give or take” amount when you invest in equities, which are the traditional growth investment.

At age 75 most people are much too scared to invest their entire retirement pot in equities. Well then, they should be even more scared to take the risk of living with longevity uncertainty. In other words, even more than wondering about your investments, you ought to be thinking about how to hedge (that is, reduce the impact of) your longevity uncertainty.

One obvious way is to buy individual longevity insurance. Unfortunately, it’s available in very few countries around the world. (One such country is the US. My wife and I have bought longevity insurance there.) But there’s an alternative that a collectivity can provide anywhere, though it isn’t well known.

It’s to create a longevity pool. (Or of course to join someone else’s pool, if you can find one.)

The principles underlying a longevity pool are well known, to techies. In fact, it’s very similar to providing what’s sometimes called a “target benefit.” This is like a defined benefit in that it’s guaranteed to last as long as you live; but the amount is not totally guaranteed. It could fluctuate up or down a little bit, depending on whether the group of people in the pool seem to be living a bit longer or a bit shorter than average. Those fluctuations, however, are typically very much smaller than would be caused by investment value fluctuations.

The amount you should be able to draw out of the pool each year is probably much higher than you would draw from your own (unpooled) assets. Why? For the reason that reader MT identified, in his comment on Post # 12. In the example there, you would only need to save for your expected 30 years of withdrawals, rather than for the more cautious approach of planning for 36 or 40 years of withdrawals. When I made calculations for my wife and me some years ago (when, admittedly, interest rates were much higher), for us the difference amounted to more than 30%.

That’s huge. And the cost of running such a pool should be much less than the implicit cost of buying longevity insurance, because there’s no need to provide a guarantee, the way insurance companies have to.

Please … some employer, association or union, start a longevity pool!


The other aspect I mentioned at the start is investment experience. Collectivities and the fiduciaries appointed to run them are well used to making investment decisions. Individuals typically are not. That’s one reason why, for most people, default investment arrangements such as a so-called “glide path” make sense when you’re working and accumulating your retirement pot.

It would make just as much sense for collectivities to offer you the chance to keep your money in the plan/scheme/fund (whatever the name is, in your country) after you retire.

The main benefit would be cost savings. Typically the cost of pooled investments for collectivities is dramatically lower than the cost that individuals are charged. The difference could be anything up to 1%, perhaps even 2%, a year. Calculate for yourself how much that would be, based on the amount you’ve accumulated or are likely to accumulate by the time you retire. Again, typically this has a huge impact on the amount you can draw down from your pot each year.


Those are two extremely helpful pooling ideas that collectivities could make available, even in times when the scene is changing to place the onus on individuals.

In private correspondence, which he gives me permission to quote, World Pension Summit panelist Alwin Oerlemans of APG broadens the discussion to include working arrangements. This was before I expanded the focus to the role of collectivities, and so he refers in this note to the employer – but adds additional angles: “In this blog you point to the role of the employer. The role of the employer will remain crucial in the future because pension deals are very much long term. Because circumstances change over time it is important to have those who designed the pension contract involved in how to deal with changing circumstances. To the benefit of both employers and employees.  Both benefit from a pension design that allows employees to be productive and innovative as longevity and retirement at higher ages lead to more experienced workers in the workplace.”

I know that among my readers are both ordinary people and retirement techies. Permit me to ask the techies: are you aware of any arrangements available, in your country, that permit individuals to join pools, whether for investment purposes or for longevity purposes? Do let me know. I have no financial interest in any such arrangements. I’ll be happy to let my readers know about them, so they can tell their relevant collectivity. Thanks!

And for you, the reader, as an individual for whom life after full-time work is or one day will be a reality: if you aren’t already in some form of collective retirement arrangement, it might be worth your while to see if you can join one.



Employers, associations and unions can form or join longevity pools, to spare their members the risk caused by uncertain longevity. And they can permit retirees to benefit from the lower cost of pooled investment arrangements.


I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

11 Responses to “#20: Collective Ways To Help Employees In Retirement Planning”

  1. David Hartley says:

    Thanks again Don for your thoughtful contribution. In relation to the longevtiy pool, you might be interested to look at the following sites:

    • Don Ezra says:

      Thanks so much! Now we all know that a longevity pool really exists! I don’t know who is eligible to participate in Mercer Lifetime Plus (TM), and the links don’t make it totally clear whether it’s restricted to Australia or how the payouts are calculated, but those are details that can be ascertained. I hope that many sponsors of defined contribution pension arrangements will dig further.

  2. Gordon Divitt says:

    Enjoying the blog and the collectivization of the individual’s assets is certainly an intriguing idea. My first reaction to reading your post was to reflect on tontines and why they seem to have fallen out of favour – murder mysteries aside.

    My concern about operating a closed, or at least restricted, collective centres around the real costs of constructing the plan legally; hiring, supervising and, if necessary, replacing trustees and/or investment managers; reporting to members (regular audited statements) and operation of a payment process in compliance with local tax laws . These costs could be substantial depending again on complexity of the plan and local legal and regulatory requirements.

    This is not your office holiday fund and it is worth considering that large trust companies who provide these types of services exist in all common law countries and were the creation of rich families who had to wrestle with the challenges of preservation and inter-generational transfer of wealth.

    • Don Ezra says:

      Thank you, those are very thoughtful observations. You’re absolutely right, these are complex and potentially expensive arrangements to establish, so they won’t spring up all around us. But at least we now know that one commercial venture exists. As for tontines, you expand our horizons by mentioning them. Dr Moshe Milevsky has written a delightful and informative book about them, called King William’s Tontine: Why the Retirement Annuity of the Future Should Resemble its Past (and it turns out that murder mysteries are actually not historically associated with them). For my readers, let me explain that tontines are another form of longevity pool. With the traditional longevity pool, each surviving member receives a constant amount each year, so the total payments fall as people pass away; with a tontine, total annual payments are fixed, so survivors receive more as their numbers decline.

  3. David Knox says:

    Thanks Don; longevity pools are certainly a very attractive way to remove that individual uncertainty of how long our money has to last.
    Mercer LifetimePlus has now been operating in Australia for a couple of years and is available for any retiree – you do not need to be a member of a particular fund. It pays investment earnings every 6 month; starts to pay capital back after 12 years and then there are the living bonus payments (they come from the mortality credits for the techies). The income payments will never run out.
    What’s more, as the number of investors increase, the income payments become more stable due to the law of large numbers.
    We are also discovering that DB pension schemes are attracted to the broader pooling concept as the number of their DB pensioners reduce.

    • Don Ezra says:

      Thanks very much, David. It’s a pleasure to acknowledge the father of what I believe is the first longevity pool available for any retiree! (At least in Australia.) It’s also interesting to see how you’ve structured the payments, because the repayment of capital feature shows that there are many possibilities to design the income stream in different ways, just as there are with traditional guaranteed lifetime income payments (aka annuities). I wish you much success!

  4. Alex Mazer says:

    Hi Don,
    Thanks so much for shining a spotlight on the value of collective arrangements versus individual, do-it-yourself approaches to retirement. We have spent a huge amount of energy, in the retirement community, debating DB vs DC, when perhaps the broader debate we should be having is collective vs individual. We have begun to model the value (measured by retirement income/assets generated for every dollar of contribution) of high-quality collective arrangements relative to the value of a typical retail approach, and are planning to release some of that research soon. We can share it with you if you are interested.

    I also appreciate your reference to the important role that unions and associations can plan in promoting these high-quality collective arrangements, especially in an era of employer retrenchment from the provision of retirement security. That these organizations can play a leadership role in founding and sponsoring such arrangements is at the core of our company’s thesis about how to address the retirement challenge / crisis. Here is an example of a collective arrangement for lower- and moderate-income workers that we created in collaboration with a Canadian trade union called SEIU Healthcare:

    Look forward to continuing to read, and learn from, your excellent posts.

    All the best,
    Founding Partner, Common Wealth (

    • Don Ezra says:

      Thanks very much, Alex. I agree: “DB versus DC” is just one aspect of the much broader “collective versus individual” approach. Yes please, when you’ve modelled the value of the probable improvement that collective arrangements can have, I’d love to see it and share it with my readers. Thanks for sharing some of the features of your “My 65+” arrangement. Personally, I’m so pleased that this post has uncovered some collective arrangements.

  5. Don Ezra says:

    A friend tells me privately that I appear to be endorsing specific commercial (that is, for-profit) ventures. That was not my intent. Permit me to explain what I believe and what I intended.

    (1) I believe that pooled arrangements can be very helpful for people in the context of retirement finance. They can provide access, where none might otherwise exist, to investment expertise, to cost savings and to longevity risk reduction.

    (2) My intent was simply to unearth pools, not to analyze the way a pool works or endorse it.

    My enthusiasm was directed at unearthing, not endorsing, the pools mentioned in these comments.

    I was also told that I might be misleading readers by using the term “collectivity” on the grounds that a true collectivity would be a not-for-profit entity, not a commercial entity. I didn’t mean to distinguish between commercial and not-for-profit entities. I was speaking about any kind of pooled arrangements.

  6. J. J. Woolverton says:

    Don, first let me apologize for not getting on board earlier, just now getting started on your blog topics. I will go back to #1 and do it right. As a result, some of my comments might have been addressed in earlier topics.

    1) as you state, “your investment income is guaranteed to last as long as you do.” I am not so sure anymore given the problems with government plans in both the U.S. (State and local) and Canada, as well as plans in a number of corporations that have failed, taking their pension plans with them; participants might think they are “protected”, however, many have been surprised; as well, markets going forward might not be as robust and, therefore, might add to deficits; pensions might be paid, but, perhaps, not at the level promised;

    2) “institutional investment arrangements are much less expensive than individual ones.” This is one of the greatest hurdles for the masses. The spread in Canada could be as much as 200 basis points. It could turn positive market returns into negative investor returns. This might be a good place to show the value of a dollar graph out 30 years — one with a fee of 250 basis points and one with a fee of 50 basis points;

    3) “for us the difference amounted to more than 30%.” You might want to expand on this more and describe “30%” of what;

    4) to me, one of the greatest risks in retirement is the expectations that individuals (and, perhaps financial planners) have been told over the years: a) you can draw down 4% a year from your pensions and everything will be okay; I am not sure in today’s environment and the increase in longevity that this works anymore; and b) you will be able to live on 60% of what your take-home pay is in the last year before your retirement. The Baby-boomers have a very high debt level going into retirement and will have to pay this down. As a result, I don’t believe that the masses will be able to have the life style they hoped for during their working career.

    Is it too late for the Baby-boomers?

    • Don Ezra says:

      Thanks, JJ, for the comments as well as the fact that you are becoming a regular, which I appreciate very much! Quick responses: (1) Yes, other readers have also mentioned that what is promised might not be paid in full, unfortunately. (2) I didn’t include a graph, partly because I’m not yet enough of a whiz to know how to use this website to its full potential, and partly because a number of commentators are now showing the results of calculations about how hugely one’s retirement prospects can be eaten into when fees are high. (3) For us, in my calculations at the time, the cost of providing an inflation-protected income for a safe period of time was 30% higher than the cost of providing the same income for our average expectancy. (4) I’m guessing that, for many Baby Boomers, it may now be too late, unless they work longer than they planned. I go back to a comment on the very first post on this website, that this should be mandatory reading for everyone on their first day of full-time work. It’s too late to change the past, but not too late to influence the future.

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