The U.S. financial system needs to do a better job of encouraging individuals to make realistic plans for old age.

Emily Kessler, a senior fellow of the Society of Actuaries, Schaumburg, Ill., delivered that message recently during an ERISA Advisory Council hearing.

Kessler noted that she speaking for herself, not the SOA, but she based her comments partly on insights drawn from the SOA Pension Section’s Retirement 20/20 project.

Project participants have been looking at church retirement plans, retirement programs in other countries, and other retirement programs that might help the United States go beyond today’s defined benefit and defined contribution systems.

Kessler said the project demonstrates the importance of insuring workers against bad decisions and bad investment luck; finding a way to balance the need pool longevity risk with individuals’ desire to pass their savings on to children; giving employers more choices, and employees more retirement plan portability; and using markets “wisely.”

“Markets need structure to work best,” Kessler said, according to a written version of her remarks provided by the SOA. “Markets work best when individuals approach the markets in groups. Groups can take advantage of specialized investments not open to individuals, employ sophisticated advisors and, with the advantages of size, minimize the cost of transactions and administration.”

Standardizing products such as individual annuities also can help, by increase individuals’ ability to compare prices and provider quality, Kessler said.

“Finally, agents – those professionals working in the markets on behalf or plans or individuals – need to be properly incentivized,” Kessler said.

In addition, individuals themselves must be properly incentivized, Kessler said.

“Today,” she said, “we encourage early retirement, discourage annuitization and do not do enough to help individuals prepare well for retirement.”

Kessler recommended that policymakers study the Teachers Insurance and Annuity Association – College Retirement Equities Fund, New York; the Dutch collective defined benefit plan system; and the Ontario Teachers Pension Plan.