Pension systems under pressure.

The OECD Pensions Outlook, published in early December, looks at the current problems for pension systems in terms of increased life expectancies, fewer active contributors compared to the number of pensioners, less stable employment careers, lower returns and inadequate pensions for certain groups of people. The resulting mistrust that people have in pension systems needs to be addressed through more far-reaching reforms and by making regulatory and supervisory frameworks for pension schemes more robust. The performance of the systems should be adapted to economic and demographic conditions in order to develop financially sustainable systems.

No easy solutions

The report acknowledges the reforms undertaken in recent decades and recommends, among other things, a gradual introduction of funded schemes while carefully monitoring the consequences. The statutory retirement age should be linked to increased life expectancy. The interplay between different pension schemes, safety nets for pensioners and the tax system should mitigate the effect of raising the retirement age.

People should be encouraged by various tax and non-tax incentives to save for their retirement. Straightforward, stable tax rules should create consistent tax benefits across all income groups. More flexibility in the retirement age, as well as the provision of innovative pension products, should help address the problem of increased life expectancy. The introduction of standard products should help people with little financial knowledge to make appropriate decisions regarding their retirement. Finally, the costs of managing retirement pensions should be aligned through various pricing regulations and structural solutions. This also requires an increase in transparency.

Better communication

In order for people to understand the reasons for, and effects of, pension reforms, these need to be better communicated by policy makers. Improved financial education also gives people a better understanding of what they themselves need to do in order to secure their retirement income. According to the report, this will restore people’s trust in pension systems.