Key Points
- The OECD wants better design and management of asset-backed pension systems.
- Pension funds in OECD countries grew by 10% in 2023, reaching over $56 trillion.
- The report highlights the need for balanced investment strategies to handle market risks.
- There are large gaps in pension coverage, especially for self-employed workers.
- Multi-employer pension plans can make pensions more accessible for small businesses.
- The report stresses the importance of flexible retirement income options and improved financial education.
Looma News
The OECD is calling for major changes to pension systems to make them more inclusive, resilient, and innovative, according to its latest “Pensions Outlook 2024” report. It emphasizes the need to improve the design and management of asset-backed pension systems to ensure better financial results for individuals and support long-term economic growth.
OECD data shows pension funds in member countries grew by 10% in 2023, reaching over $56 trillion—three times what they were two decades ago. This growth was driven by strong returns in the stock market and contributions that outpaced benefit payments. However, total assets were 5% lower than in 2021, reflecting some market volatility.
Addressing Coverage Gaps
With aging populations and other economic challenges, the report stresses the need to fill significant gaps in pension coverage. It points out that self-employed workers and those without collective agreements often miss out on coverage. The OECD suggests multi-employer pension plans could help by pooling resources from different employers, particularly smaller businesses.
The report also discusses the importance of balanced investment strategies. While stocks usually offer higher long-term returns, the report warns that market swings can be risky for those close to retirement. It suggests using life-cycle investment strategies to manage these risks and still make the most of potential returns. Policymakers are encouraged to avoid overly cautious default investment options that might limit retirement income.
Flexible Retirement Solutions
The OECD is calling for a rethink of how we pay out retirement income. Flexible solutions that offer guaranteed lifetime income, money for unexpected costs, and options for extra spending are key. The report also highlights the need for better financial education, pointing out that digital tools, like pension dashboards, can help people take control of their retirement planning.
The report also discusses how home equity release products could support retirees financially. But it stresses these products need proper regulation to ensure they’re transparent, easy to access, and protect consumers. A clear set of rules is essential to make sure these products meet people’s needs and provide security in retirement.
Improving Incentives and Financial Education
When it comes to saving for retirement, the OECD advocates for better financial incentives. But it warns that complicated tax rules and slow updates can make these incentives less effective. Simplifying the system and making timely adjustments is crucial to ensure that incentives are fair, especially for low-income earners.
Mathias Cormann, OECD Secretary-General, emphasized that pension systems are vital for financial security and economic stability. He stressed that pension frameworks must adapt to changes in the labor market to improve retirement outcomes and ensure the long-term strength of pension systems.
