By Dr. Arun Muralidhar

Adjunct Professor of Finance, Georgetown University

The recent focus on adding private assets, typically Private Equity (PE), to pensions is gathering steam in the United States and the United Kingdom, but is completely misdirected (“Should ordinary pension accounts be investing in private assets”, Brooke Masters, Financial Times, Opinion, May 28, 2025). This is tantamount to worrying about whether wagyu cattle is fed Saporo or Kirin beer! What we are most concerned about is whether the marbling is perfect and the taste exquisite. The same applies to defined contribution (DC) pensions, which today do not provide individuals with guaranteed real retirement income, and that should be the focus of government efforts. Not what gets fed into the investment/fee machine. The good news is that an innovation pioneered by Brazil in January 2023, a retirement income bond, titled SeLFIES, but marketed as RendA+ (“retirement income extra”) in Brazil, has been extremely successful and might be a better use of the government’s time and focus in developed and developing markets.

The global shift to transfer responsibility to individuals to plan for retirement, a movement from defined benefit (DB) to DC pension plans, does not bode well for retirement security. Planning for retirement is a complex mix of accumulation, decumulation, compounding and inflation (to preserve real standard-of-living), and most individuals are financially unsophisticated or unlikely to become experts overnight. Moreover, we have one life time to figure out four complex decisions of how much to contribute, what to invest in, how to rebalance and then how to decumulate over our lifetime. While the shift from DB to DC has transferred the responsibility, the goal is unchanged; namely, we would like to continue our pre-retirement lifestyle into retirement and till death; namely, receive guaranteed real retirement income. Sadly, available instrument, whether current government bonds, including inflation-indexed bonds, or even equity and PE, provide a massive mismatch between the cash flows they generate and those needed in a DC pension to guarantee real retirement income. Enter SeLFIES and RendA+.

SeLFIES (Standard-of-Living Indexed Forward Starting Income-only Securities) is an award-winning (generic) bond proposed by this author and Nobel Laureate Robert Merton, and supported by many academics and practitioners. The simple idea is for say the UK government to issue a bond, that pays nothing till one turns 65 (say one’s retirement age), for a period of say 20 years (average life expectancy in the country), and that too pays only ₤10 real/year as coupons. The reason for this design was if an individual needed ₤50,000/year in today’s currency, to supplement social security payments in retirement, then their goal is distilled to just having to buying 5,000 of these bonds before they retire. Buying the bond is equal to buying a pension. More importantly, they can track where they are relative to this goal during their lifecycle, and need to answer just two questions: target date of retirement (to buy the right bond with the right start date) and target supplemental income in today’s terms. The bond embeds the complex accumulation, decumulation, compounding and inflation-indexed calculations, and reflects it in the daily price.

This is not fantasy. Brazil launched RendA+ in January 2023, on their Treasury Direct platform, allowing individuals to purchase these bonds off either the internet or an app on their phone, and in slices as small as ₤1/time (fractional bonds). They issued 8 different series – starting in 2030 (for a 60-year-old today), 2035, …, 2065 (for a 25-year-old). Purchases are voluntary, but because prices are quoted three times a day, they are liquid and individuals can reverse or change their date of retirement or target supplemental income at will. They are also inheritable and just require answers to the two questions mentioned above. Moreover, the Brazilian Treasury went further and allowed individuals to purchase these bonds via gift cards, so benevolent employers (individuals) can gift employees (friends) guaranteed real retirement income. In fact, a small liquor shop owner in the small town of Minaos (Mr. Cysne), bought his five employees RendA+ via the gift cards, thereby starting them on the path to taking control of their retirement security without an expensive pension overhead. As of May 2025, 312,450 individuals bought these bonds for a value exceeding R$5 billion. This innovation received the runner-up award for innovation at the Global Pension Summit in the Netherlands in 2023. In addition, this innovation has led to a complementary innovation, Educa+, an education financing bond, which is much needed in the US and UK, with over 150,000 investors and raising approximately R$1.4 bn.

While the private asset firms have extensive lobbying and public relations budgets, governments should not look at the steer, but the rear, and issue SeLFIES. They are simple, liquid, low-cost, low-risk, inheritable, ensure financial inclusion for the self-employed, and they are a trivial innovation to launch. PE does not ensure retirement security in “PE”nsions; SeLFIES do!