GLOBAL – The Organisation for Economic Cooperation and Development says companies’ unfunded pay-as-you-go pension schemes should be “prohibited”.

“Private occupational plans should be funded,” the OECD said in a new recommendation on the core principles of occupational pension regulation. “Private unfunded pay-as-you-go plans at individual company levels should generally be prohibited.”

“An adequate regulatory framework for private pensions should be enforced in a comprehensive, dynamic and flexible way (taking into account the complexity of the schemes) in order to ensure the protection of pension plan members and beneficiaries, the soundness of pension plans and funds and the stability of the economy as a whole,” the Paris-based body said.

“This framework should however not provide excessive burden on pensions markets, institutions, or employers.”

It added: “A productive, diversified investment of retirement savings which spreads risk requires well-functioning capital markets and financial institutions.”

The 13-page document called for the “development of new financial instruments and new markets such as inflation-indexed markets and the improved functioning of retirement annuity markets”.

The OECD said: “More efficient regulation and management of company pension schemes are needed if today’s employees are to enjoy adequate retirement pensions tomorrow.”

The OECD’s principles builds on work with International Network of Pension Regulators and Supervisors. There are six principles cover:

- Conditions for effective regulation and supervision
- Establishment of pension plans, pension funds, and pension fund managing companies
- Pension plan liabilities, funding rules, winding up, and insurance
- Asset management
- Rights of members and beneficiaries and adequacy of benefits
- Supervision