OECD lays out tough new pensions guidelines

GLOBAL- OECD members have approved a series of 12-point guidelines for the administration of private pension funds that are set to become international standards within the organisation’s 30 member countries.

Designed to protect individuals’ retirement benefits from mismanagement and fraud, the 12 guidelines set standards for the governance and oversight of collective pension funds.

“Pension funds should have appropriate control, communication, and incentive mechanisms that encourage good decision making, proper and timely execution, transparency, and regular review and assessment,” say the guidelines.

Recommendations by the OECD could mean that pension fund administrators are ultimately responsible for protecting the interests of scheme members and their beneficiaries, retaining the duty of overseeing and monitoring their service providers.

The guidelines touch on the role of auditors and actuaries as whistleblowers. The two parties should inform supervisory authorities if a fund is unlikely to comply with the appropriate statutory requirements, and if there is to be a significant negative effect on the financial situation, or the administrative and accounting organisation of the pension fund.

Disclosure of relevant information, and the establishment of communication channels between all parties involved in the administration of the pension fund are also proposed.

The guidelines also require that members of a pension fund governing body should not be criminals, fraudsters, bankrupts or individuals responsible for gross mismanagement of a fund.

Although voluntary, the guidelines have been adopted as an international benchmark by OECD's 30 member governments, pressured to be more responsible in the light of high-profile corporate bankruptcies such as Enron, and underfunding company pension plans.

“Privately managed pension funds are among the largest institutional investors in many OECD countries, holding nearly 30% of OECD financial assets in 2000. They are expected to play an increasingly significant role in providing retirement income to the ageing populations in OECD countries and, given their size, a central role in the financial marketplace.

“Their regulation, supervision and governance is imperative for the successful implementation of social policy, as well as for the smooth functioning of the markets for securities and other financial instruments,” says the report.

The OECD will monitor the implementation of the guidelines, and the World Bank and the International Monetary Fund will use them as part of their regular assessment of international standards.

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