The Organisation for Economic Co-operation and Development (OECD) has urged policymakers to enhance the design and governance of asset-backed pensions, in order to secure better outcomes for individuals and contribute to sustainable economic growth and innovation.
“Pension systems are a cornerstone of financial security and economic resilience for an ageing population in many countries,” said Mathias Cormann, secretary-general of the OECD.
“More inclusive, innovative, and sustainable asset-backed pension frameworks evolving with labour markets are essential to improve retirement outcomes for individuals and ensure the resilience of pension systems.”
Cormann was presenting the latest edition of the biennial OECD Pensions Outlook 2024 report, which found that despite progress, significant gaps in pension coverage remain, particularly for self-employed workers and employees not covered by collective agreements.
The report said that by pooling resources across employers, especially small and medium-sized enterprises, multi-employer pension arrangements can improve accessibility.
Specifically covering asset-backed pension arrangements, the report also suggested improving financial incentives for saving, although it warned that complex tax rules and irregular updates could undermine their effectiveness. Non-financial adjustments such as simplifying these incentives could however maintain their effect.
“Setting up incentives needs rigorous social cost benefit analysis”
Panagiotis Tsakloglou, deputy minister for social security, ministry of labour and social affairs, Greece
However, during the panel session which followed the presentation of the report, Panagiotis Tsakloglou, deputy minister for social security, ministry of labour and social affairs, Greece, pointed out that the country offers very generous tax incentives.
But he cautioned: “If you give someone a tax incentive, you’re taking it from someone else. So setting up incentives needs rigorous social cost benefit analysis.”
Payout phase change
The report also called for a re-imagined approach to the payout phase of retirement.
Flexible solutions providing guaranteed lifetime incomes, liquidity for unexpected expenses and options for discretionary spending are essential.
It said that investing in financial education is crucial, while digital tools, such as pension dashboards, are important to empower savers and foster awareness.
Julia Cillikova, executive director for regulation and consumer protection, National Bank of Slovakia, and chair of the OECD working party on private pensions, agreed that dashboards gave consumers some responsibility, and also the chance to be educated.
Reflecting the views of other panel members from several countries, she said: “There is a perception that someone else will look after you. People often ignore [the need for retirement saving] and are surprised when they find out [they haven’t saved enough] but by then it’s too late to complain.”
The report suggested that home equity release products could also be a valuable resource for individuals to bolster their financial resources in retirement. Panel members pointed out that there were many countries where the percentage of home ownership among savers actually increased the further they were down the income scale.
However, the report stressed the need for strong consumer protection and clear regulation, along with well-designed regulatory frameworks, to ensure these products are accessible, transparent and suited to individual needs.
Asset growth
Meanwhile, overall pension assets in OECD countries grew by 10% in 2023, reaching over $56trn, more than triple the level seen two decades ago, according to a second report from the OECD, Pension Markets in Focus 2024.
In advanced economies, pension assets have nearly doubled as a share of GDP to an average of 55%, exceeding 100% of GDP in eight countries.
Growth in 2023 resulted from positive returns in equity markets and positive cashflows from contributions exceeding benefit payments. But the 2023 total is still 5% below the level seen in 2021, following the rise in interest rates and falling equity valuations in 2022.
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