On the go: People’s trust in pension systems remaining low is one of the findings of the OECD's recently published Pensions Outlook 2018.
The 253-page report says starkly: “Population ageing, low returns on retirement savings, low growth, less stable employment careers and insufficient pension coverage among some groups of workers have been eroding the belief that all types of pension systems, pay-as-you-go or funded, will deliver on their promises once workers reach retirement age.”
Commenting on the report, Pablo Antolin, principal economist and head of the OECD’s Private Pension Unit, said: “There remains significant concern about whether institutions managing their retirement savings actually have their best interests at heart.”
The report confirms that behavioural biases and low levels of financial knowledge undermine people’s ability to make appropriate decisions for their retirement at all stages of their lives, but the right policies can combat this.
Auto-enrolment and auto-escalation, default options and simple information and choice should be considered in this context.
It states that default options clearly help people who are unable or unwilling to choose a contribution rate, a pension provider, an investment strategy or a post-retirement product, such as an annuity.
The report also highlights that simplifying the decision-making process through, for example, clear pension statements and dashboards, can get people to take action to improve their retirement income prospects.
A diversified and balanced pension system that incorporates a funded component such as an annuity is important and remains a key policy goal of the OECD.
The report argues that better disclosure, pricing regulations and structural solutions are required to align charges levied with the cost of managing retirement savings.
Antolin concluded: “Ultimately, and for fear of stating the obvious, to ensure higher retirement income, people need to increase retirement savings, pension contributions, and/or the length of the contribution period in both pay as you go and funded pension arrangements. This is even more necessary as improvements in mortality and life expectancy lead to ever-longer periods in retirement. As such, we should also look at increased flexibility around retirement age for all groups and ensure that lower socioeconomic groups are not penalised in retirement for having shorter life expectancies.”
