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12

Slow economic growth 'increasing pension funding pressures'

Open-access content 8th December 2014

Low investment returns and stuttering economic growth are increasing the financial pressure on pension systems in developed countries, the Organisation for Economic Co-operation and Development has warned.

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In its Pensions Outlook 2014, the economic think-tank said the problems of ageing populations were being compounded by low investment returns, in part due to low interest rate levels set by central banks in response to the 2008 financial crisis.

The report stated the crisis had spurred many countries to speed up reforms to make their state pension systems more financially sustainable. These included raising taxes on pension income and pension contributions, reducing or deferring the indexation of pension benefits, and increasing the statutory retirement age.

Some have also introduced reforms to strengthen funded private pensions, such as putting in place auto-enrolment programmes which have successfully raised pension coverage where they have been tried, including the UK.

'It's encouraging to see the progress made in recent years to make pension systems more sustainable and adequate,' secretary general Angel Gurría said.

'But the ongoing rapid demographic shift and the slowdown in the global economy highlight the need for continuing reforms. We must communicate better the message that working longer and contributing more is the only way to get a decent income in retirement.'

Among proposed reforms, the OECD called for a strengthened regulatory framework for private pensions to help pension funds and annuity providers deal with uncertainty around improving life expectancy. Regulators should ensure providers use regularly updated mortality tables, which incorporate future improvements in life expectancy, as failure to account for these can result in shortfalls of over 10% of the pension and annuity liabilities.

This article appeared in our December 2014 issue of The Actuary.
Click here to view this issue
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