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This article by Manuel Garcia-Huitron, co-authored with Carolina Gonzalez-Velosa and Oscar Becerra, is a technical note published by the Interamerican Development Bank. Multiple studies have highlighted the urgent need to reform the Colombian pension system, and most of the discussion has focused on proposing the implementation of a reform option and supporting the advantages of this alternative. This document addresses a different perspective: it compares the main alternatives that have been presented in recent years to improve both the contributory system and solidarity programs and makes the dilemmas transparent in light of different policy objectives. In addition, the document explores reform alternatives that improve the viability of retirement products and that can align the performance of pension funds with the long-term interests of the affiliates. Finally, options are discussed to create institutional capacities that strengthen accountability mechanisms and facilitate the adaptation of the system in the future. The reform avenues discussed throughout the document have different benefits and costs depending on the objectives. Therefore, the choice of an option will depend on the type of social contract around which there is a consensus as a country.

On February 23, 2022, the Organisation for Economic Co-operation and Development (OECD) adopted Legal Instrument 0467 that updates its Roadmap for the Good Design of DC Pension Plans. Moreover, it elevated the Roadmap to the status of an official OECD Recommendation to increase its status, visibility, and global reach. The document discusses ten policy principles to strengthen retirement income adequacy within DC pension plans, saying that it “aims to improve the robustness of retirement systems and increase beneficiaries’ trust that pension provides have their best interest in mind.” Included in these principles, the new legal instrument states that OECD Adherents should: “Ensure protection against longevity risk in retirement. DC pension plans should provide some level of lifetime income as a default for the pay-out phase, unless other pension arrangements already provide for sufficient lifetime pension payments. Lifetime income can be provided by annuities with guaranteed payments or by non-guaranteed arrangements where longevity risk is pooled among participants. The choice of the type of arrangement will depend on the desired balance between the cost of guarantees and the stability of retirement income. Flexibility could be provided by allowing for partial, deferred or delayed lifetime income combined with programmed withdrawals. Full lump-sums should be discouraged in general, except for low account balances or extreme circumstances.” (underscoring added) As pioneers of modern, actuarially fair, DC longevity risk pooling research, methodologies, and technology, Nuovalo is excited that the OECD has recognized the important benefits of longevity risk pooling to retirement income adequacy and security. We make it easy for DC pension plans, asset managers, robo advisors, and others to integrate lifetime income solutions directly into their existing ecosystems at low cost, without the overhead and complexity of insurance guarantees. Interested in learning more about modern fair longevity risk pooling? See the Nuovalo Research Library or the Section 6 of the OECD Pensions Outlook 2020. Or contact us here.

We are thrilled to announce that our Chief of Global Strategy and Operations, Manuel Garcia-Huitron, joined the international advisory board at Pensión Research & Consulting located in Istanbul, Turkey. Other experts in the board are Thomas Post, Ziga Vizintin, and Manuel José Tabilo Sanhueza. Seda Peksevim, the founder of Pensión Research & Consulting, established the company to further her mission to create today's world map of pensions through high-quality research and consulting projects, international collaboration, and knowledge sharing. We are confident that Manuel will contribute to the company's success. Mentoring, knowledge sharing and support to young female entrepreneurs are part and parcel of Nuovalo's values. Click here to learn more about Pensión Research & Consulting and its founder Seda Peksevim.

“Notwithstanding the terrible price the world has paid in the coronavirus pandemic, the fact remains that longevity at older ages is likely to continue to rise in the medium and longer term.” In the new volume "New Models for Managing Longevity Risk: Public-Private Partnerships" published by Oxford University Press, experts around the world explored how the private and public sectors can work together in public-private partnerships (PPPs) to develop new mechanisms to reduce the risk of older people losing their assets in old age. We are proud that our CEO Richard Fullmer and our advisor, the late Jonathan Barry Forman, contributed to this volume with their chapter "State-sponsored Pensions for Private Sector Workers: The Case for Pooled Annuities and Tontines." "PPPs typically involve shared government financing alongside private sector partner expertise, management responsibility, and accountability. In addition to offering empirical evidence on examples where this is working well, contributors provide case studies, discuss survey results, and examine a variety of different financial and insurance products to better meet the needs of the aging population. This volume will be informative to researchers, plan sponsors, students, and policymakers seeking to enhance retirement plan offerings." Click here to learn more about the new volume.

Nuovalo’s Richard Fullmer joined host Stefan Lundbergh for the February broadcast of Pioneering Pensions to discuss the merits and practical implementation of longevity risk pooling in defined contribution (DC) plans. Mr. Lundbergh opened the episode with a reference to Squid Game, the popular Korean television series, and drawing on its resemblance to an old-fashioned tontine scheme. Mr. Fullmer followed with a discussion of what tontines are, and noted the important differences between old-style tontines and modern tontines. Nuovalo believes that modern tontines should be actuarially fair to all investors at all times. This fair tontine principle is quite powerful in that it opens up a surprisingly wide range of potential product designs. “This sort of risk pooling is not taught in any actuarial science course that I am familiar with. It has nothing to do with insurance or defined benefits. There are no liabilities, only a pot of assets… Now, I think we should stop thinking of this as a product and start thinking about it as a principle.” ~ Richard Fullmer Mr. Lundbergh introduced the concept of Collective Defined Contribution (CDC) plans, which the Netherlands is moving away from just as the United Kingdom begins to move toward them. He mused that CDC stands for Complicated Defined Contribution because it sets long-term targets that depend on a number of uncertain assumptions that plan sponsors and actuaries have a poor track record of forecasting. Conversely, he noted the relative simplicity of modern tontine risk pooling, which is far less reliant on such assumptions because modern tontines automatically self-adjust to reflect actual experience rather than assumed experience. The two then discussed the practical implementation of modern tontine longevity risk sharing within, for example, master trusts in the UK. This was followed by a discussion of questions from the audience. A replay of the episode can be found at the Pioneering Pensions website.

Is it possible to reconcile the financial sustainability advantage of DC pension schemes and the retirement security provided by DB retirement plans? According to Daniel Mantilla-Garcia, Manuel García-Huitrón, Lionel Martellini and Miguel Angel Martinez Carrasco the answer is a resounding yes. Daniel Mantilla-Garcia, Assistant Professor at the Universidad de los Andes Colombia and Associate Researcher at the EDHEC Risk-Institute France, presented the paper "Back to The Funding Ratio! Improving Incentives and Pension Security in Defined Contribution Plans with a Fiduciary Obligation" at Netspar's International Pensions Workshop 2022. This paper was co-authored by our Chief of Global Strategy and Operations Manuel García-Huitrón, Linoel Martellini and Miguel A. Martinez-Carrasco. You can find the slights from Daniel's presentation here.

Nothing beats a dynamic duo when it’s time to tackle retirement income and risk sharing! Last December Massena Associates interviewed our Chief Executive Officer Richard Fullmer and Chief of Global Strategy and Operations Manuel García-Huitrón. Click here to read the full article.

Last week, Olga Fuentes, from the Pension Regulator in Chile, presented a proposal to introduce Longevity Income Pools in Chile, coauthored with our CEO Richard and our Chief of Global Strategy and Operations Manuel, twice! First at the Global Pensions Program 2021 organized by the Interamerican Development Bank (IDB), Novaster, and the London School of Economics (LSE), and second at the 2021 Colloquium on Pensions and Retirement Research, organized by Centre of Excellence in Population Ageing Research (CEPAR). The paper simulates several possible designs, including stand-alone traditional or deferred arrangements and combinations with existing pay-out products in Chile. It also compares the results with other reform proposals in Chile. Interestingly, the explored designs do not distort the Chilean annuity market. It, therefore, shows that these two products can be supplementary if annuity markets exist, like Chile, or enable efficient longevity risk sharing in places with thin or nonexistent annuity markets. You can find the 29th Colloquium on Pensions and Retirement Research here (English): (Olga Fuentes presentation about "A sustainable, Variable Lifetime Retirement Income Solution for the Chilean Pension System" starts at minute 44 ) Here is the video of the Global Pensions Program 2021 (Spanish): (Olga Fuentes presentation starts at minute18:40) The paper will be available soon. Stay tuned!

The Uruguayan Pension Reform Commission just published its reform recommendations. Nuovalo is proud of the advisory work that Richard Fullmer and Manuel García-Huitrón contributed on the savings and payout phase discussions. Among the many proposals across a range of areas, the commission introduces the concept of Fondos Mutuos Previsionales (what we call Lifetime Income Pools) as a potential supplementary option to deal with longevity risk in Uruguay, one of the most advanced ageing countries in Latin America.

organized by the Ministry of Labor and Social Security Brazil We are proud to announce that two of our team members contributed to the 3rd International Seminar on Private Pensions, organized by the Ministry of Labor and Social Security of Brazil. Manuel, our Chief of Global Strategy and Operations, moderated the session on lifetime income and behavioral economics and our CEO Richard Fullmer presented about lifetime income solutions. Watch the full video here: ( Richard Fullmer's longevity risk pooling presentation starts at 27:47 min)

What Costs and Risks Do They Address that Traditional Annuities Cannot? Two of Nuovalo’s executives participated in the Georgetown University Center for Retirement Initiatives’ Annual Policy Innovation Forum on November 2–3, 2021. Chief Executive Richard Fullmer spoke on a panel titled “Collective Defined Contribution Plans and Tontines: What Costs and Risks Do They Address that Traditional Annuities Cannot?” He addressed the similarities and distinctions between CDCs and (modern) tontines and emphasized the importance of ensuring actuarial fairness within the DC system, pointing out that: “CDCs and tontines share many similarities, most notably that they offer risk pooling without guarantees. It has been said that CDCs are like tontines with complexities added in, and I think that’s a fair statement because CDCs are more ambitious. Because CDCs target future payout levels, they can create intergenerational biases that favor the old at the expense of the young. In contrast, modern fair tontines are designed to be actuarially fair to all investors, at all times. At its essence, a pure tontine’s only ambition is to decumulate assets over participants’ lifetimes as efficiently as possible.” Chief of Global Strategy and Operations Manuel Garcia-Huitron spoke on a panel titled “International Approaches to Retirement Income: What are Key Trends and Lessons for the U.S. Retirement System?” He addressed pension challenges in Latin America and lessons for the US, as well as innovative options to tackle these challenges in the region. Here is a quote to some of his remarks when asked about whether innovation and improvements must wait for political action, or the industry and other stakeholders need to find their way there to delivering on retirement income: …“There is a lot that can be done without changing any law or getting into comprehensive pension reforms. I do not think that we should wait for political action. Some time ago, I joined a webinar with Peter Diamandis, and I was impressed when he vehemently said that where many see an impossible challenge, he sees an opportunity. It is a fascinating time to be working on pensions as the world is in flux, and many things that were not possible in the past few years are now, thanks to technology and the insights from behavioral economics and advances in financial theory and practice…” See here for additional information about the CRI policy innovation forum.

Nuovalo’s Manuel Garcia-Huitron participated as member of the advisory board of the Mercer CFA Institute Global Pension Index Americas 2021. The report is assembled by a global Mercer’s team led by David Knox, in collaboration with the CFA team. The 2021 edition included a special chapter on the gender gap in pensions. Manuel is a member of the independent international advisory council, organized by Monash University in Australia, along with a very impressive cadre of experts from around the world. At events announcing the index, Manuel analyzed the largest hurdles to improving pension systems in Latin America, based on the results of the global report, as well as the situation in gender differences in pension outcomes in the region. A replay of the episode can be found at here.