MAX WIETHE: You figured out that annuities weren't going to solve it.
Obviously, a lot of certain countries, we have the Social Security system here in the
US, I know you're from Ireland, countries all over the world have their own forms of
pension to protect people after they retire, but it's pretty obvious here that Social Security
is not going to be a viable solution, most likely by the time I reach retirement age.
As well, if you just talked to anybody about the sorts of checks they're getting from Social
Security, it's not enough to live on, so that you have to supplement it somehow.
We know that what's available from the government is not enough and what's available on the
private market currently is sub-optimal to be polite.
How did you come to this conclusion that tontines were a viable alternative?
DEAN MCCLELLAND: Well, just if I can comment on the Social Security pensions situation
first, there was a Citi Group report out I think it's about two years ago now, they calculated
that the richest 20 OECD countries in the world have a combined pension deficit of 78
trillion, which is bigger than global GDP.
They forecast that this is going to rise to 400 trillion by 2050.
Basically, it's rising faster than GDP.
If you've got a problem that big, that's completely out of control.
It's not getting solved anytime soon.
Anybody I talked to in Europe, that's around more like your age, I say how do you feel
about the pension system you have to pay in at the moment?
They're like, we'll never see it.
We'll never see it.
We'll never see a penny.
It's like a tax that just completely ripped it off.
If you think about the US, obviously, that's where we are at the moment, of the 50 states,
I think 49 of them are so underfunded that there's a good chance to run out of money
really between the next seven and 15 years, which is unbelievable.
Again, it's an unsolvable problem.
There's one state, which is Wisconsin, which is fully funded.
The reason you can trust in getting your pension from Wisconsin is that it's run exactly like
a tontine.
MAX WIETHE: What is some of the differences between the way that it's run in Wisconsin?
You say it's run like a tontine, but why don't we get into the nitty gritty?
What does that mean to be run like a tontine?
DEAN MCCLELLAND: If you think about from a pensions perspective, in the good old days,
you have defined benefit pension.
Your uncle worked all his life for GE, let's say, once the greatest company in the world,
some would say.
He contributes every month and he knows when he reaches retirement, he's going to receive
a pension for the rest of his life.
Unfortunately, all those calculations that were made by GE, originally, were wide of
the mark.
They didn't put enough money aside to be able to make up for that and now, I think you've
read all the articles, ultimately, GE's pension fund is probably going to take it down over
the next, well, certainly less than a decade.
That's like almost 600,000 families that were expecting this payment for the rest of their
life, it's now just going to disappear.
What the world has done is they've shifted away from defined benefit pensions because
they realized that just they're unaffordable for governments or for big corporations.
They've moved to something called defined contribution pensions.
Basically, a defined contribution pension is that you save all of your life and then
when you get to retirement, you can then start drawing it out.
It's great that they get you saving so you've accumulated some capital but then you got
the problem of working out how much can I spend every month, so that I don't run out
of money.
MAX WIETHE: There was an example in our conversations, before this interview, brought up of one country
in particular that has some pretty horrifying statistics about a similar plan, where you
have to pay in, but you reach that age and it's totally available to you which is how
the defined contribution plans usually work.
In Malaysia where it was 90% of all savers have run through their entire retirement savings
within 18 months of reaching retirement age, so there still has to be-- we as human beings
are still, at least with our current education system and the way the world works, we're
not equipped to actually save for ourselves in this way and in some ways, there is a little
bit of hand holding that needs to be done.
That's where I think your plan meshes some of the, in the defined contribution aspects,
which is that there isn't a set payout for everybody at the end, but knowing full well
that you still can't give everybody the keys to the kingdom when they reach retirement
age.
You defined ambition plan, can we talk a little bit about that?
DEAN MCCLELLAND: First of all, if you look at Wisconsin and Netherlands and Denmark,
and so Netherlands and Denmark are the only A rated pensions in the world, by there's
an annual report that comes out every year.
The reason they're so highly rated is that they have the ability to adjust the amount
that they're paying.
If there's been a market crash scenario, as it was in 2008, and as is likely to happen
in the not too distant future, then the pension fund has the ability to adjust the payments
that they've been making going forward.
Demand is not fixed.
It's like a safety mechanism that allows them just to balance the books.
That's it.
It's that simple.
Just allowing that feature enables the fund to maintain its solvency all the way along.
When you're saving into the Danish state pension, they'll tell you what they expect you to receive,
but it's an ambition, it's not a guarantee, because they have that adjustment mechanism
that's going to ensure that they're able to keep the promises that they're making.
MAX WIETHE: They're able to keep their promise.
It seems like a very straightforward methodology, what's preventing the rest of the world from
following this model?
DEAN MCCLELLAND: Nothing.
They're doing it.
Canada has just introduced legislation last year making I think they call it Group Life
Pools or something like that.
I can't remember the name, off the top of my head, but they've offered tax concessions
for people when they come together to pool their money.
The Royal Mail pension fund which I think is about $15 billion reformed, converted to
a scheme like this last year, there was a lot of objections from the insurance industry,
understandably, but they were able to convert their whole fund, and there was a 90% approval
rating.
Now, the UK Government has come out and said, look, this is actually a great idea.
We need to put in place a framework so that everybody can start moving to this type of
model, because this is the future.