People’s trust in pension systems is low. Population ageing, low returns on retirement savings, low growth, less stable employment careers and insufficient pension coverage among some groups of workers have been eroding the belief that all types of pension systems, pay-as-you-go or funded, will deliver on their promises once workers reach retirement age. This is supported by evidence in the recent OECD Risks that Matter survey. People are also concerned about whether the institutions managing their retirement savings in funded pension arrangements have their best interests at heart.

This mistrust may surprise some, given the wide range of pension policy reforms across OECD countries in recent decades. These reforms have improved the sustainability of pension systems, in particular of pay-as-you-go defined benefit public pensions. Many countries, for example, have introduced automatic mechanisms to adjust pension benefits to economic and demographic developments while taking measures to strengthen safety nets to prevent old-age poverty.

Regulators and policy makers have taken steps to make regulatory and supervisory frameworks for funded pension arrangements more robust. This includes improving pension fund governance, investment policies and strategies, and investment risk management, with the goal of ensuring a more solid focus on the best interest of members. Progress has also been made in better aligning the charges and fees individuals pay with the actual cost of providing funded pensions. Measures to improve transparency are essential, but they work best when supported by pricing regulations and structural solutions.

Policy makers have also implemented measures to improve the design of funded pension arrangements to address the challenges of insufficient financial knowledge and behavioural biases and assist people make better choices for their retirement. These include providing targeted financial incentives, including matching contributions; automatic mechanisms; default options; simplification of information and choice; and financial education initiatives.

All of these reforms have made pension systems more robust today and better placed to deliver pensions. However, people’s concerns are at least partially grounded in some remaining challenges. To ensure higher retirement income, people need to increase retirement savings, pension contributions, and/or the length of the contribution period in both pay as you go and funded pension arrangements. This is even more necessary as improvements in mortality and life expectancy lead to ever-longer periods in retirement.

Policy makers have a range of options, including linking the statutory retirement age to improvements in life expectancy, keeping in mind that there are large socio-economic differences in life expectancy in many countries. The interaction between different pension arrangements, old-age safety nets and the tax system may sometimes address the potentially regressive effect of increasing the retirement age, when this age is fixed for everybody. More flexibility around the age at which people can access their pension savings may help reduce this regressive feature. Financial service providers need to develop innovative products and approaches to manage longevity risk. In addition, higher funded retirement savings could be achieved both by linking increases in contributions over time to increases in real wages and through better designed financial incentives. Governments are also examining how to integrate workers in non-standard forms of work, such as those active in the platform and gig economy and those working as independent contractors, into public pensions and encourage them to save for retirement.

Finally, pension reforms need to be better communicated so that the rationale and effects of such reforms become clearer. People need a better understanding of what they themselves can do to secure their retirement incomes, why contributions to all types of pension arrangements are important, which vehicles are available for retirement saving, and how they are protected. These key steps could help to restore trust and confidence in pension systems.



Stephano Scarpetta

Director, OECD Directorate for Employment, Labour and Social Affairs



Greg Medcraft

Director, OECD Directorate for Financial and Enterprise Affairs

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