The coronavirus crisis has added to the problems private and public pension systems around the world were already dealing with, the Organisation for Economic Cooperation and Development (OECD) has said, but warned policymakers not to respond to economic pressures by letting people use pension savings early – unless there are no other options.
In the 2020 publication of its biennial Pensions Outlook report, the OECD said: “Even before the outbreak of the pandemic, retirement savings and old-age pension systems were facing significant challenges.”
These included ageing populations, low economic and wage growth and low returns in traditional asset classes and low interest rates, it said.
“COVID-19 compounds some of these challenges and adds new ones,” the intergovernmental body said, adding that the health and economic crisis was increasing the risk that people may be unable to save enough for retirement, but warning against “well-intentioned measures” to provide short-term relief by granting people early pensions access.
Angel Gurría, OECD secretary-general, said: “Allowing access to retirement savings should be a measure of last resort, and based on hardship circumstances rather than being granted widely and unconditionally.”
Countries needed to strike a balance between the short-term income support provided by, for example, granting people access to their pensions before retirement age, and the potential negative effect of such measures on future retirement incomes, he said.
The warning echoes remarks directed at national financial supervisory authorities in May from the International Organisation of Pension Supervisors (IOPS). While supporting pragmatic approaches taken by some of its members, IOPS warned against “actions that may lead to material worsening of the retirement outcomes of beneficiaries”.
Gurría said the crisis around the virus outbreak had reinforced the importance of having long-term savings for emergencies, and suggested adding such a product to pensions.
“Introducing long-term savings arrangements that combine a savings account earmarked for retirement and a savings account for emergencies could make retirement savings more resilient,” Gurría said.
In the new report, the OECD makes several recommendations to policy makers, including advice to make sure people keep saving for retirement and avoid selling assets and materialising losses when markets plummet.
Among other pieces of advice for politicians from the OECD are entreaties to adopt a framework to assess retirement income adequacy with regular assessments, and to ensure communication about investment strategies is adapted to target audiences and avoids jargon.
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