Countries warned of long-term risks of short-term measures on pensions

Several OECD countries have been warned that the short-term measures they have taken to help citizens through the coronavirus crisis have long-term risks.

Speaking at the Irish Association of Pension Funds’ (IAPF) virtual Investment Conference, yesterday 21 July, OECD principal economist and head of private pensions unit, deputy head insurance, pensions and financial markets division, Pablo Antolin said that some of these measures could impact on retirement income adequacy in the future.

Countries such as Finland, Estonia, Iceland, Spain, Portugal, the USA, Peru and Australia have implemented measures that have a goal to improve people’s situation during the pandemic.

Antolin said some of the measures aim to address issues with saving for retirement and to improve the situation of providers and the pensions system in general.

The main policy responses which the OECD deems to have been good initiatives have been to limit the materialisation of investment losses, secure the solvency of retirement plans and the business of providers, subsidise contributions, address operational disruptions and protect from scams and cyber attacks.

However, several OECD countries have implemented measures with the goal of providing short-term relief, which the organisation believes could have a “large negative impact on the long-term retirement saving arrangement”.

This includes deferring pension contributions, reducing contribution rates, suspending contribution payments, allowing easier access to retirement savings and facilitating loans to employers and employees from pension plans. .

“Access to retirement savings pots are probably one of the worst measures, we believe, because the impact is larger, and is larger the closer the individual is to retirement because obviously they will have a larger amounts of assets accumulated, given that most of these measures are based not on an amount but on a percentage of the assets accumulated,” he explained.

Instead, he believes that welfare systems should be used first by governments to help citizens, and accessing pension pots early should be advised against. He also warned that pension funds might have liquidity problems because of these measures leading to cash flow issues.

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