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Improving Financial Education and Awareness on Insurance and Private Pensions

image of Improving Financial Education and Awareness on Insurance and Private Pensions

Individuals face an increasing variety of financial risks, including those linked to their retirement. At the same time, public funding has been reduced or is strictly limited in most countries. Private insurance and pensions products therefore play an essential role in social and financial protection. Yet the public might have a low level of awareness of the risks they are exposed to, and lack literacy, knowledge and skills in insurance and private pensions questions and products.

This volume addresses these topical and unexplored issues as part of the ongoing OECD project on financial education. After a comprehensive analysis of the main challenges and presentation of practical solutions, the book highlights good practices, endorsed by OECD governments, to enhance awareness and education on risk, insurance and private pensions issues.

 

 

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Financial Education and Saving for Retirement

Why Financial Education is Needed for Retirement Saving

The need for financial education is increasing being recognized in relation to all financial products. This paper focuses on the growing need for financial education in relation to retirement savings, and in particular pensions. For the purposes of this paper, the definition of a pension plan is taken from the OECD taxonomy as: “a legally binding contract having an explicit retirement objective (or – in order to satisfy tax-related conditions or contract provisions – the benefits cannot be paid at all or without a significant penalty unless the beneficiary is older than a legally defined retirement age). This contract may be part of a broader employment contract; it may be set forth in the plan rules or documents, or may be required by law. In addition to having an explicit retirement objective, pension plans may offer additional benefits, such as disability, sickness, and survivors’ benefits”. Both defined benefit and defined contribution schemes are considered as pension plans. Retirement savings is used to describe other, non pension, retirement products, such as insurance products and tax-incentivised savings. As the report will explain, financial education is particularly important for defined contribution type pension plans – which will be the focus of the paper. However, financial education cannot be ignored even within the context of defined benefit pensions or other retirement savings products involving guarantees. Issues relating to these products will be touched upon, but not considered in detail. Further, this paper does not advocate one type of pension plan or retirement savings product or another, but merely aims to point out the increasing importance of financial education within all types of pension systems.

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