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06

Make pension membership compulsory, says OECD

Open-access content Tuesday 12th June 2012 — updated 2.41pm, Tuesday 5th May 2020

Governments should consider making private pension membership compulsory and linking retirement ages to increasing life expectancy to make national pension systems sustainable, the Organisation for Economic Co-operation and Development said yesterday.

Over the next 50 years life expectancy at birth in developed economies is expected to increase by more than seven years and increases in retirement ages are underway or planned in 28 out of the 34 OECD countries.

But the organisation's Pensions Outlook 2012 found that these increases were only expected to keep pace with improved life expectancy in six countries for men and in 10 countries for women.

A formal link between retirement ages and life expectancy would help to ensure pension systems are both affordable and adequate, the OECD said.

These links already exist in Denmark and Italy, and the UK government announced plans earlier this year to automatically review the state pension age in line with longevity increases.

With many people in countries where private pensions are voluntary facing a major fall in income when they retire, the OECD said countries should also consider making pension membership compulsory to help close the 'pension gap'.

'Making private pensions compulsory would be the ideal solution to eliminate the pension gap and ensure benefit adequacy,' the report said

Auto-enrolment is a 'second-best' option, which had seen mixed results to date. In New Zealand, it had created a major expansion in private pensions, but had only a small effect in Italy, the report noted. The UK begins introducing auto-enrolment for workplace pensions this autumn.

Angel Gurria, the OECD's secretary general, said: 'Bold action is needed. Breaking down the barriers that stop older people from working beyond traditional retirement ages will be a necessity to ensure that our children and grandchildren can enjoy an adequate pension at the end of their working life.

'Though these reforms can sometimes be unpopular and painful, at this time of tight public finances and limited scope for fiscal and monetary policy, these reforms can also serve to boost much needed growth in ageing economies.'

This article appeared in our June 2012 issue of The Actuary.
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