The world is moving rapidly from retirement savings dominated by governments and employers to accounts run by and for individuals.

Aging populations, surviving longer, are bankrupting government pay-as-you-go social security systems, forcing conversion to private-sector alternatives. Employers are limiting defined-benefit pension commitments and instituting more affordable defined-contribution alternatives.

Individuals faced with new responsibility for ensuring adequate retirement income are demanding more control and more information to manage retirement funds effectively.

This movement constitutes a major threat to the role of traditional intermediaries -- such as banks and insurers -- in private retirement savings and a major opportunity for financial institutions able to meet some new requirements.

But the days of internally focused institutions providing generic products through distribution points with limited hours and without active advice and customer service are over. The ability to meet the new customer need for help with retirement planning, before and after retirement, will determine the winners in this rapidly growing market.

Individualization of retirement income preparation has been building for years. For example, in the United States the ratio of active workers to retirees is about 3 to 1. By 2040, it is expected to decrease to 2 to 1. Without a major increase in Social Security taxes or reduction in benefits, a large deficit will develop.

Today, Social Security covers only 30% of final base pay of $25,000 for retirees, and lower percentages at higher final pay levels. We can expect the government to increase private incentives to cover the declining role of Social Security in meeting retirement income needs.

Other countries have seen the same trends. Some have taken even more dramatic action.

In 1981 Chile replaced a bankrupt social security system with one of mandatory contributions to private pension fund managers. At death, disability, or retirement, periodic benefits are available either through the fund administrators or through purchase of a payout annuity. Individuals choose the fund manager they will use. What they receive depends on the contributions over the years and the performance of investments.

Similar systems have since been established in Argentina, Mexico, Colombia, and Peru, as well as in Poland and Hungary.

Around the globe, reforms have shifted responsibility from governments to individuals, for example, superannuation plans in Australia, individual private pension plans in the United Kingdom, private pension supplements in France, and 401(k)-style plans being contemplated for Japan.

Just as governments are abandoning responsibility for providing retirement income, employers are limiting their responsibility.

In the United States, private plan participation in defined-contribution plans grew from 20 million in 1980 to more than 45 million in 1997, and defined-benefit plan participation went from 38 million to 40 million. From 1982 to 1994, defined-benefit contributions dropped from more than $40 billion to about $37 billion, as defined-contribution additions rose from just more than $20 billion to over $80 billion.

What does this mean to financial institutions? The good news is that trillions of U.S. dollars in retirement savings contributions will be coming into the market worldwide. But with this growing opportunity to manage assets comes some daunting challenges.

A rapidly growing portion of these funds is going into individually controlled accounts. As people are now called on to assume primary responsibility for ensuring that they will have adequate retirement income, they are demanding more information about investment performance, investment options, and expenses.

Fund managers must offer attractive performance and options at competitive expense levels, with account management services -- all long-standing competitive requirements. But now they must also offer easy access to customer account information and advice to help customers understand how to select and use investment options. That requires knowledge of what customers want and need, as they perceive it, and convenient responses to both through the investment vehicles and advice required.

Who will be the winners in this growing retirement savings marketplace?

The early evidence suggests it will be nontraditional fund managers. The market share of mutual and money market funds of personal assets held by intermediaries in the United States has risen from under 10% in 1970 to nearly 45% in 1996.

Banks and insurers have lost market share and must reassess their approach and learn new customer-centered service approaches. They are not out of the game but must move quickly to close the gap.

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