Stable pensions during the COVID-19 pandemic
Our ageing society remains the major challenge.
VS – 12/2021
The OECD has unveiled its biennial Pensions
at a Glance (Pensions at a Glance) report. According to this report,
pensioners' incomes were well protected in most member states despite the
severe economic impact of the pandemic. However, the consequences of the ageing
of society will pose major challenges to all pension systems. The OECD
advocates that automatic adjustment mechanisms should be agreed upon at
national level. This will increase the transparency of the policy, create
confidence in pension systems and strengthen the view with regard to long-term
OECD countries focus on strengthening the first pillar
Many OECD countries have significantly
reformed their pension systems, focusing on strengthening the first pillar.
These include EU countries such as Poland, Slovenia and Hungary, who have
significantly increased pension benefits. Estonia, on the other hand, abolished
compulsory private pension provision during the pandemic and allowed
contributions to be paid out early. However, prioritising the first pillar does
not mean extending the pay-as-you-go system. For example, Greece will replace
the pay-as-you-go supplementary pensions with a funded defined contribution
According to the OECD, there is also a
clear trend towards topping up pensions for people who have received a low
income during their working lives. This also includes the EU countries such as
Germany and Latvia.
Automatic adjustment mechanisms
Automatic adjustment mechanisms are
designed to help governments achieve their medium- to long-term pension policy
objectives and cope with the impact of ageing on pension provision. There is no
question in the OECD's mind that the final decision will always be a political
one. It has been legitimised for this. Automatic adjustment mechanisms only
increase the perception of medium- to long-term objectives, whereas
discretionary measures are more likely to be guided by short-term objectives.
However, the experience of recent years has shown that this requires the
broadest possible consensus to ensure the long-term sustainability of
adaptation mechanisms. Automatic adjustment mechanisms that are abolished after
each change of government will end up acting like discretionary measures.
Linking the standard retirement age to the development of long-term life expectancy
The OECD is promoting the linking of the
standard age limit to longer life expectancy as a specific automatic adjustment
mechanism in order to make pension systems fit for the challenge of an ageing
society. The OECD suggests a ratio of 2:1 should be used here: two-thirds of
the increase in life expectancy should be spent in gainful employment and
one-third should be part of the retirement phase.
Such a mechanism would contribute to the
long-term financial sustainability of pension systems. However, this proposal
is not distribution neutral. Poor education and associated low social status or
stressful working conditions have a significant impact on life expectancy. This
correlation is more pronounced for men than for women. An increase in the
standard retirement age will place a disproportionate burden on these groups.
Therefore it would be desirable for the next publication of Pensions at a
Glance in 2023 to provide a more in-depth analysis with regard to this.