Larry Fink warns retirement crisis looms for ageing world population

BlackRock chief’s annual letter also embraces ‘energy pragmatism’ amid attacks over climate stance

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The world faces a looming “retirement crisis” that requires a rethink of pensions and working patterns as medical breakthroughs boost longevity, BlackRock’s chief executive Larry Fink warned on Tuesday in his closely watched annual letter to chief executives and investors. Fink, whose previous missives have helped boost interest in stakeholder capitalism and climate change, cited UN projections that one in six people globally would be older than 65 by 2050, up from one in 11 in 2019, as he called for increasing global use of capital markets to help workers save for old age. 

The BlackRock chief also warned that the rise of defined contribution pension plans had combined with the growing strain on the social security government retirement programme to leave the US particularly unprepared for a huge increase in the retiree population. “We focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years,” he wrote. “Today in America, the retirement message that the government and companies tell their workers is effectively: ‘You’re on your own.’” Fink described the mismatch between what Americans were saving and what they would need as “a problem so big and urgent that government and corporate leaders [need to] stop business as usual [and] step out of their silos and sit around the same table to find a solution”. 

More than half of BlackRock’s $10tn in assets under management are retirement savings, including institutional pension funds, corporate defined contribution plans known as 401(k)s and individual accounts. Fink’s new focus on retirement came alongside an effort to stake out a middle ground in the political wars over sustainable investing, an approach he called “energy pragmatism”. His previous letters have made BlackRock a target in debates over climate change and companies’ responsibilities to respond to it. It has lost investment mandates from Republican-led US states for allegedly being “hostile” to fossil fuel and been lambasted by Democratic activists for not doing more to divest from it. 

Citing his trips to 17 countries last year, Fink wrote that global politicians and businesspeople increasingly planned to invest in both oil and gas for energy security and green power for the energy transition. “These leaders believe that the world still needs both. They were far more pragmatic about energy than dogmatic,” Fink wrote. “Nobody will support decarbonisation if it means giving up heating their home in the winter or cooling it in the summer. Or if the cost of doing so is prohibitive.”

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Fink is not alone in his concerns about retirement. Congress has passed two reform packages in the past five years aimed at making 401(k) and other retirement plans more comprehensive and effective. Thasunda Brown Duckett, chief executive of retirement provider TIAA, has been talking for several years about a $4tn gap between what Americans need for old age and what they have saved. She has argued that all companies should be required to enrol workers in a savings plan that will create a substantial pension pot, rather than leaving it up to individuals to opt in. 

Fink’s letter raised issues more than it suggested concrete solutions, but he wrote that Japan had found ways to encourage people to stay in work longer and that Australia’s national retirement savings system, known as the superannuation guarantee, had been effective at creating larger pension pots for more workers. 

As a grandfather and as an American, Fink wrote that more must be done to address high levels of despair among young people. “If future generations don’t feel hopeful about this country and their future in it, then the US doesn’t only lose the force that makes people want to invest. America will lose what makes it America,” he wrote. This article has been amended to make clear Larry Fink’s previous letters helped boost interest in stakeholder capitalism, not shareholder capitalism as originally stated

Sourced from Financial Times‍