OECD: The economic crisis makes private pensions more important than ever

Andreea Arăboaei

While public pension systems are facing sustainability problems due to demographic factors (aging of the population) and are affected by the crisis, as unemployment is rising, some governments, pushed by immediate budget concerns, are writing off the efforts to increase the efficiency of private pension systems, a system which ensures the diversification of the income sources for retirees, the Organization for Economic Co-operation and Development (OECD) warns.

OECD, which gathers the 30 most developed countries of the world, has published a report called "Private Pensions and Policy Responses to the Financial and Economic Crisis", which includes observations and recommendations on improving the private pension systems on a global scale.

The OECD claims that private pensions have an increasingly important role in the diversification of revenue sources for retirees, and raising the retirement age and the raise of social security contributions will help increase the revenues available on retirement.

Overregulation in reaction to the current economic and financial crisis, is also not recommended in the private pension sector. Moreover, the governance and risk management of the pension funds have to improve on a global level, and the monitoring of private pensions systems has to be flexible and targeted towards reducing risks, the OECD claims.

The organization recommends the continued improvement of the design of "defined contributions" pension funds, for instance by including some default investment strategies.

The "multi-pillar" model can help protect participants who are close to the retirement age. Guarantees in "defined contribution" systems could be useful - but is it unclear what level of guarantees are necessary or who can and is willing to pay for these guarantees, the report states.

OECD feels there is a need for national information campaigns to explain the long-term nature of pension assets and to raise and consolidate trust in the pension system.

Financial education is needed to help beneficiaries understand pension funds, their investments, risk and return, etc. Both the investment returns, as well as the costs (commissions) of the funds, have to be presented more clearly, OECD officials said.