Why Governments Want More People Investing

Governments around the world are facing a growing challenge: how to support aging populations while maintaining sustainable public finances. Lower birth rates and longer life expectancies mean that fewer working-age people are supporting a larger retiree population, increasing pressure on state-funded benefits, particularly pensions. 

At the same time, policymakers are concerned that many households continue to hold a large share of their wealth in cash rather than investments that could potentially generate long-term growth. Research across several developed markets suggests that many individuals have sufficient assets to benefit from investing more effectively. Against this backdrop, the study examines how different countries are encouraging greater participation in investing, explores the policy strategies being considered, and highlights the opportunities and challenges involved in helping individuals build stronger financial futures while supporting broader economic goals.

The full research study explores:

• How 10 major global markets are seeking to encourage retail investment
• Why retirement savings systems are one of the most important drivers of participation
• The various strategies being used and their effectiveness 

Andy Pettit: So, the genesis of [the research] was really coming from the well-publicized issues around governments needing to contain their borrowing and to stimulate growth. And these things have direct impact on citizens in a couple of really key ways.

Firstly, there's the increasing cost of state-provided benefits, and especially pensions, which is causing a lot of concern. And then secondly, as well as the ageing societies, the other big worry for policy makers is really that too much of people's assets continue to sit in cash savings, and they'd like it to be working harder both to improve individuals' personal financial lives, and also to assist with the broader policy goals.

So, I've got a couple of slides just to provide a bit more context for this. The first one illustrates the demographic drivers, highlighting how a growing number of retirees are needing to be supported by fewer and fewer people of working age. 

Pettit: So, the two charts you see span some 140 years with the black vertical line in the middle indicating the current point in time. And of the markets we looked at, Japan offers the most extreme current picture where the combination of lower birth rates and higher life expectancy has pushed the number of retirees up to around 35% of the population. And it's estimated by the UN to reach around 40% before it starts to stabilize.

Spain offers a slightly different example where the direction of travel and the estimated end state is very similar, but the transition is actually starting some 20 to 30 years later.

And then the other countries that we looked at lie somewhere in between, but with all of them heading in the same direction. 

Pettit: Then the second slide shows the breakdown of household assets according to OECD data. Some of the things that stand out here are really Japan's huge 50% allocation to cash savings. That's there followed by the European countries, which with the exception of the Netherlands, which along with Australia and the UK, really have the largest store of assets in pensions.

Canada stood out to us with the most balanced or evenly distributed breakdown of assets. And then the US were by far the lowest cash levels and highest equity levels, but we think there's more to that story, which we'll come back to as as we get into the discussion.

And then we found research in several markets, which is really confirming this picture and basically saying that amongst their populations, there are sizable numbers of people that have sufficient assets that they could well benefit from investing, hence the the drivers. 

So, given this backdrop, we really wanted to use our data and research to contribute and support the growing policy debate. So, we set out to explore what strategies are in place or being explored across a range of developed markets, and then to look at some of the challenges and opportunities that come with them and search out what tactics have shown some signs of success.