The OECD has published a new edition of its research book Pensions at a Glance. The report highlights the pension reforms carried out by OECD countries over the last two years and how the Covid-19 pandemic has affected pensions.
However, the problem goes far beyond the pandemic. The rapid ageing of society has altered pension systems in many countries, even halting some reforms. The declining birth rate and the ageing of the baby boomers are some of the reasons why the average age of countries in the OECD is getting higher with each passing year. In 2020, the median age among OECD countries was 41 years, while in 1990 the median age was 33 years. According to the information provided in Pensions at a Glance, in 2060 “the retirement age will increase about two years”.
What measures are countries taking to address this challenge?
The main measure implemented has been the introduction of the Automatic Adjustment Mechanism (AAM). This mechanism change pension parameters or pension benefits automatically depending on the evolution of an indicator e.g., when demographic, financial or economic indicators change. The implement of the AAM can help to create fewer erratic changes and be more equitable and transparent.
Would these be enough to address the growing concerns about pension adequacy?
Private retirement savings are not performing well either in Europe. BETTER FINANCE’s 9th edition of the Report on Real Returns and Long-Term Pension Savings continues to show evidence of low or even negative returns after costs and inflation have been deducted.
Considering the impact on the economic output generated by the global health pandemic, the strains on public pension systems, the current low-interest-rate environment, and the shift from defined-benefit to defined-contribution pensions, addressing the pensions time-bomb is long overdue.
In line with other initiatives of EU and UK public authorities,[1] BETTER FINANCE proposed a framework to assess and deliver Value for Money for long-term and pension savings in this year’s report.
See BETTER FINANCE’s report: Real Return of Long-Term and Pension Savings report | 2021 Edition