“How Persistent Low Returns Will Shape Saving and Retirement” edited by Olivia S. Mitchell, Robert Clark, and Raimond Maurer

One of the biggest challenges many countries face is the ageing population. Low fertility rates accompanied by an increase in longevity make the ageing population one of the most important issues the humanity should deal with it. This book tackles one of the important matters regarding the ageing population which is providing enough retirement income for retirees. Yet, this is not a trivial matter. As a result of a decrease in fertility rate and an increase in longevity, Pay As You Go type publicly run retirement schemes are not enough to fund individuals’ retirement alone. As a result, the supplementary retirement schemes are needed. In theory, rational individuals should have enough private savings to smooth out consumptions over time. Yet, this does not work in practice and hence, in addition to the public pension, forced savings mechanisms make sure that individuals have enough retirement income. These schemes can be either defined benefit (DB) or defined contribution (DC). In the DB schemes, pension funds are responsible to provide certain guaranteed benefits, i.e., the retirees do not bear risks. In the DC schemes, the investment return risk falls on the retirees. Over time, in the US, and many other places, pension funds move from DB types to DC types at increasing rates. In a reasonably high capital market return environment, forced saving mechanisms provide reasonably well insurance against the longevity risk whether they are DB of DC types. Yet, for a long period of time, the global economy faces low capital market returns. As a result, DB pension funds face a hard time to meet their obligations while DC pension plan holders face inadequate income support in their retirements. Under these circumstances, professional fund managers, current working generation, and current retirees need to come up with strategies to cope with this relatively new phenomenon. We also need more research on financing retirement in the era of low return and high longevity. Possible remedies are increasing savings, consuming less in retirement, working more, retiring late, and investing better. Yet, all these suggestions are not trivial to handle. Although there are a lot of discussions on financing retirement in the low return era, I was not aware of a comprehensive work until I read ‘How Persistent Low Returns Will Shape Saving and Retirement edited by Olivia S. Mitchell, Robert Clark, and Raimond Maurer’. This book provides an excellent survey of the problems and possible solutions regarding saving and retirement when the persistent low returns are the reality. The book contains 12 independent chapters categorised under three parts except the first chapter. The first chapter provided a brief overview of the book. The first part consists of five chapters from chapters two to six. The second chapter provides an explanation of why the interest rates are low. It is mainly focused on the political economy explanation of the independence of the US Federal Reserve System. Although the chapter provides an explanation regarding the low interest rates we face, I would prefer to see another chapter explains the issue from the more theoretical point. The low interest rate is a global phenomenon and there is vast research on it. I felt that the current book would be more informative if it extended the origins of the low returns a little bit more. The remaining four chapters in the first part analyse the consequences of the low interest rates. The third chapter concludes that saving rates would need to rise by roughly two-thirds for most