On the go: The pandemic-led economic crisis has compounded the challenges faced by pension systems in different countries, while also bringing new problems for governments to deal with, a new report has found.
According to the OECD Pensions Outlook 2020, published on Monday, issues such as population ageing, low growth, low returns and low interest rates “were already weighing heavily” on the different types of pension schemes before the outbreak of the pandemic.
Covid-19 compounds some of these challenges and adds new ones, noted Stefano Scarpetta, director at the OECD directorate for employment, labour and social affairs, and Greg Medcraft, director at the OECD directorate for financial and enterprise affairs, in the report’s editorial.
“In addition to the likelihood that economic growth, interest rates and returns will remain low long into the future, the health and economic crisis is increasing the risk that people may be unable to save enough for retirement,” they warned.
Among the new issues brought along by the pandemic are “operational disruptions because of working remotely, cyber attacks, frauds and scams, and calls on assets earmarked for retirement to support the economic recovery”, Mr Scarpetta and Mr Medcraft said.
As a result of the pandemic-led crisis, governments have taken a range of swift measures to improve the sustainability and resilience of pension arrangements, which included extending job retention schemes and unemployment benefits that allow workers to keep accruing retirement benefit entitlements, or providing flexibility around pension plans, the OECD stated.
However, “well-intentioned measures to provide short-term relief by granting people access to their retirement savings before they reach retirement age are likely have a detrimental effect on future retirement incomes, particularly where access is granted widely and unconditionally”, the two directors noted.
One of the solutions pointed out by the OEDC to make retirement savings more resilient, and address the challenges posed by the need for early withdrawals, is “if long-term savings arrangements include both a savings account earmarked for retirement and a savings account for emergencies”.
