OECD/IOPS sets out pensions recovery recommendations
21 April 2009

Written by Sophie Baker

Global pension assets have dropped by over 20 per cent, or $5.4trn, as a result of the financial crisis, says the Organisation for Economic Co-operation and Development (OECD).

The organisation said the pressure on defined benefit (DB) funding levels has been increased by this drop, and has also dented many defined contribution (DC) systems worldwide.

Representatives from the OECD and from the International Organisation of Pension Supervisors (IOPS) discussed policy responses to the crisis in light of international guidelines and best practices, and has drawn lessons on the important role private pensions play in complementing public pension systems.

Private Pension and Policy Responses to the Economic and Financial Crisis explains their findings. Complementary private provision for retirement remains high on the OECD/IOPS agenda for the survival of global public systems. Public pay as you go pension systems face sustainability problems due to ageing populations, and have been affected by unemployment increases. Private pensions also still have a major role to play in maintaining balanced sources of retirement income.

The OECD/IOPS recommendations also state that flexibility allowing access to pension assets may be necessary at times of financial difficulty, but must be strictly controlled to avoid ‘leakage’ from the system. Supervisory oversight should be proportionate, flexible and risk-based, and funding and solvency rules for defined benefit plans should be counter-cyclical, according to the findings.

Public provisioning should provide adequate pensions for low income workers, and incentives to keep working and increase contributions are necessary to help rebuild pension assets. DC plans need improvement, with default funds helping to protect those close to retirement, and the governance and risk management of pension funds must be improved to avoid exposure to assets that are not fully understood. Finally, disclosure and communication, as well as financial education, need to be addressed to help further improve the pension systems.