Retirement outcomes have improved through combining funded and pay-as-you-go pensions, automatic mechanisms and a strong safety net for pensioners, but the belief in systems and their ability to deliver is eroding, global policy forum OECD has found.
The OECD Pensions Outlook 2018 shows a lack of trust in fund’s capacity to deliver on promises once workers reach retirement following the challenges governments face, including population ageing, low returns on retirement savings, low growth, less stable employment careers and insufficient pension coverage among some groups of workers.
Meanwhile improvements in the design of pension systems have made them more financially sustainable over the past decade and that governments should focus on ensuring that they provide adequate retirement income for their members, the OECD found.
However, the regulatory and legal framework of pension funds should be kept at arm’s length from the government, it said.
OECD secretary-general Angel Gurría, launching the report in Paris, said: “Pension reform remains a continuing challenge as countries need to ensure people get an adequate pension while remaining affordable.”
The report argues that several countries have taken measures to strengthen safety nets and introduced mechanisms to adjust pension benefits to economic and demographic developments and prevent old-age poverty. It said automatic features, default options, simple information and choice, financial incentives and financial education can result in better retirement outcomes.
In light of the increases in life expectancy, the OECD said policies to improve the sustainability of pension systems will need to consider how those in different socioeconomic and gender groups may be affected.
It said: “Increased flexibility around retirement age and progressive public pensions and tax rules partly address financial disadvantages in retirement of population groups with shorter life expectancy.”
In a statement, the OECD wrote that this is “because low levels of financial knowledge and behavioural biases can lead people to make unsuitable decisions for retirement.”
Regulators and policymakers have also taken steps to create regulatory and supervisory frameworks for funded pension arrangements more robust to make sure they manage people’s savings in their best interest.
The OECD argues that pension funds should have clearly stated missions to guide investment policy, an oversight board accountable to authorities and members and transparency about governance arrangements and investment and risk management, to keep them accountable to different stakeholders.
The report also found that survivor pensions still play an important role in smoothing living standards after a partner’s death. However, they should not redistribute from singles to couples or limit incentives to work.