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Ageing in OECD countries and the need for private pensions

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  1. Ageing in OECD countries and the need for private pensions Stéphanie Payet and Clara Severinson The Working Party on Private Pensions 24 October 2011

  2. People are living longer, and… • One of the great achievements of the last century was the mitigation of old-age poverty in OECD countries. • As society ages, pension promises are getting more costly. • A balance must be found between fiscal sustainability and adequacy of benefits.

  3. Spending more time in retirement 2050 M 20.3 / W 24.6 2010 M 18.5 / W 23.3 1971 M 13.5 / W 18.2

  4. 2060 Projected Pension Expenditure

  5. International Trends • State pensions are being cut back in response to ageing populations • Globally, there is a shift towards risk-sharing in both state and occupational pensions: • Defined contribution and hybrid plans • Fewer traditional DB plans • Individuals are more exposed to risks

  6. Estimated Replacement Rates (public pension and mandatory pensions savings)

  7. The Financial Crisis has put pressure on private pension savings • Confidence has been shaken as investment returns have been extremely volatile • Some governments are being pressured to retreat from private pension … • … but public PAYG systems face sustainability problems given ageing populations and are also affected by recent increases in unemployment • Public provisioning should provide adequate retirement income for low income workers – a safety net • Incentives to keep working and to increase contributions should be considered to help build pension assets

  8. Main Policy Goals • Balancing the objectives of benefit adequacy and financial sustainability remains the key challenge • Long-term strategy should remain diversification and balanced old-age provision including both private and public pensions • Main policy goals: • Live longer, work longer, contribute longer • Strengthen private pension systems • Improve financial literacy

  9. An overview of WPPP projects • Global Pension Statistics’ project • Joint EU-OECD project on coverage, contributions and benefits in private pensions • Retirement Savings Adequacy Project • Design of DC pension plans

  10. The Global Pension Statistics’ Project • Since 2002, the GPS provides a valuable means for measuring and monitoring the funded pension industry, and permits inter-country comparisons of funded pension statistics and indicators across countries • Data are collected yearly from administrative sources and published with a 7-months lag • Large geographical coverage: 34 OECD countries and 32 non-OECD countries, thanks to the cooperation with the International Organisation of Pension Supervisors

  11. Scope of the GPS • Variables collected cover: total assets, asset allocation, liabilities, contributions, benefits, costs, membership and number of funds/plans • Mandatory and voluntary funded pension plans are included, covering public and private sector workers, and are broken down by: • Types of plans: occupational/personal, DB/DC • Financial vehicles: autonomous pension funds, pension insurance contracts, book reserve or other • Data on Public Pension Reserve Funds are also collected

  12. Data Dissemination and Publications • Newsletter “Pension Markets in Focus” (published around July each year) • Key pension funds’ indicators disseminated freely through OECD.Stat and updated on an ongoing basis • Data sharing with the EU DG Employment • Flagship publications: “OECD Private Pensions Outlook 2008” and forthcoming “OECD Pensions Outlook 2012” with ELS • Contributions to: “OECD Pensions at a Glance”, “OECD Factbook” and “OECD in Figures”

  13. Joint EU-OECD Project: Goals • Assess publicly available data sources which could be used to estimate levels of private pension coverage, contributions and benefits • Examine ways and means to make better use of available administrative data and micro datasets at national and international levels • Estimate a selected list of indicators for 8 countries

  14. Retirement Savings Adequacy Project: Main objectives • Assess the amount of financial resources people may have to finance retirement • Construct indicators of retirement savings adequacy and highlight the role of private pensions in financing future retirement • Identify groups of the population in each country at risk of not being prepared for retirement • Draw policy recommendations on how to improve the adequacy of retirement savings

  15. Design of DC pension plans • Retirement income adequacy depends more and more on the pension benefits stemming from DC pension plans • The WPPP has been working during the past 3 years on ways of improving the design of DC plans in order to ensure this adequacy • Proposed policy measures concern both the accumulation phase and the payout phase

  16. Further details and contact Stéphanie Payet Clara Severinson