Unify civil servant, private sector pension scheme rules, says OECD

The OECD has called for pension scheme rules and entitlements for civil servants to be subject to the same rules as those in the private sector.

The call is one of the main policy messages in its 2016 Pensions Outlook, released on Monday.

It said that, in half of OECD countries (of which there are 35), civil servants’ future pension promises, as measured in terms of replacement rates, were 20 percentage points higher for a full career than those of the private sector.

“The OECD recommends a pension framework that applies the same rules to the public and private sectors,” it said. “This should facilitate labour mobility and increase efficiency.”

The think tank said many of the original rationales for civil service pension arrangements were “less relevant now”, and that many civil servants’ pension arrangements had been aligned with those of the private sector as the result of reform since the 1990s.

However, it noted a number of OECD countries still maintain “a dual system with sometimes large differences” between the pension scheme rules and entitlements for civil servants and those for people working in the private sector.

Belgium, France, Germany and Korea are the only four countries in the OECD that have an entirely separate scheme for civil servants, according to the OECD.

It sees another 10 as having a “top-up” component for civil servants, such as in the UK, 17 have no special scheme for civil servants, and four have “technically separate schemes for civil servants but offer benefits similar to those for the private sector”.

One of the benefits from equalising rules across the public and private sectors, according to the OECD, would be “significant economies of scale” in managing the system – for example, with respect to record-keeping and benefit payment.

“Moreover,” it added, “restraining labour mobility across sectors – vested periods or limited portability, for example – is inefficient, introducing rigidities in individual career management and restricting workers’ capacity to adapt to sectorial shifts and new employment opportunities.”

The bulk of the OECD’s latest outlook report was preoccupied with the growth in funded pension arrangements, in particular in the form of defined contribution arrangements and the implications thereof for aspects such as scheme design, financial advice and education, and the role of annuity products.