On the go: Policymakers should pursue pension reforms despite the current economic uncertainty, as delays would put at risk the well-being of current and future pensioners, the OECD has warned.
The OECD Pensions Outlook 2022, published on December 1, showed that asset-backed pension arrangements have been growing in the past two decades in most OECD member countries, with total assets earmarked for retirement representing just over 100 per cent of total OECD gross domestic product at the end of 2021.
OECD secretary-general Mathias Cormann said: “Strong retirement systems will be important to protect the living standards of our ageing population as demands on these systems continue to grow.
“The challenges are global, with jurisdictions all around the world facing similar challenges in the context of lower growth, high inflation and financial market uncertainty while responding to the implications of population ageing.
“We will need to continue to develop and strengthen a multi-pillar system that combines different types of pension schemes which supplement one another and diversify risks.”
The report makes a series of recommendations on how to introduce, develop and strengthen asset-backed pension arrangements, noting that these schemes “should complement, and never substitute, pay-as-you-go public pensions”.
These arrangements should be “designed to diversify the sources to finance retirement and make pension systems more resilient to the challenges they face, such as ageing populations”.
The report also examines how employers can play an important role in the provision of asset-backed pension arrangements.
“Reinforcing their role requires balancing the advantages, such as designing plans that fit the needs of employees, with the potential challenges such as cost, complexity and administrative burden,” the OECD stated.
Improving schemes design also “requires promoting low-cost and cost-efficient arrangements that will be reflected in the fees charged”. However, “policymakers and regulators need to consider the impact that different fee structures may have on individuals saving for retirement and on providers”, it added.
The report highlights the need for appropriate mortality assumptions, “as these are crucial to ensure the sustainability of lifetime retirement income for pensioners”.
The outlook also provides policy guidelines on how to design, introduce and implement non-guaranteed lifetime retirement income arrangements, known in the UK as collective defined contribution schemes.
These schemes “protect members from the longevity risk of outliving their savings without obliging further contributions from the sponsor to maintain benefit levels”, the OECD stated.
