The OECD Pensions Outlook 2022 says that pension arrangements in which retirement savings are invested to accumulate assets that will finance pensions (asset-backed pension arrangements) have been growing in the last two decades in most OECD member countries. Total assets earmarked for retirement represented just over 100% of total OECD GDP at the end of 2021. These arrangements play a key role in diversifying the sources of retirement funding.
"Strong retirement systems will be important to protect the living standards of our aging population as demands on these systems continue to grow," OECD Secretary-General Mathias Cormann said. "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."
To help countries improve the robustness of retirement systems and build peoples' trust that their best interests are considered, the report includes a series of recommendations on how to introduce, develop and strengthen asset-backed pension arrangements. These schemes should complement, and never substitute, pay-as-you-go public pensions, and be designed to diversify the sources to finance retirement and make pension systems more resilient to the challenges they face, such as ageing populations.
These guidelines, building on the February 2022 OECD Recommendation of the Council for the Good Design of Defined Contribution Pension Plans, recognise the importance of occupational and personal pension arrangements that are increasingly an integral part of most countries' overall pension system, and in some countries, the main component.
Employers can play an important role in the provision of asset-backed pension arrangements, according to the report. 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.
Improving their design also requires promoting low-cost and cost-efficient arrangements that will be reflected in the fees charged. However, policy makers and regulators need to consider the impact that different fee structures may have on individuals saving for retirement and on providers.
This edition of the Outlook also highlights the need for regulators and supervisors to ensure the appropriateness of mortality assumptions, as these are crucial to ensure the sustainability of lifetime retirement income for pensioners. It also provides policy guidelines on how to design, introduce, and implement non-guaranteed lifetime retirement income arrangements, which protect members from the longevity risk of outliving their savings without obliging further contributions from the sponsor to maintain benefit levels.