The 2018 edition of the “OECD Pensions Outlook” report examines how pension systems are adapting to improve retirement outcomes, focusing on the design of funded pensions and assessing how different pension plans can be combined, taking into account the different policy objectives and the risks involved in saving for retirement.

According to the report, the improvements in the design of pension systems in the OECD countries over the last decade have made them more financially sustainable and governments should now focus on ensuring that they provide people with adequate retirement income.
In the report, the OECD also warns governments of the challenges they face pensions matters, such as population aging, the low yields of pension savings, slow economic growth, less stable professions and insufficient pension coverage for some groups of workers. The OECD points out that these issues erode the belief that the pension systems, whether PAYGO or funded, will deliver on their promises once workers reach retirement age.

The main messages of the report are the following:

1. The sum of funded and PAYGO pensions, automatic mechanisms and “a solid safety net” for pensioners, improve retirement outcomes.

2. To improve the design of financial incentives for pension saving, tax rules should be straightforward, stable and consistent across all retirement savings plans. Aligning the burdens imposed by pension providers on affiliates with the cost of managing retirement savings requires better information, enhanced price regulation, and structural solutions.

3. The regulatory and legal frameworks of the pension funds must be defined; pension funds must have clearly-stated missions for guiding investment policy; an oversight board must report to the competent authorities and to members; and there must be transparency regarding the mechanisms of governance and investment and risk management, in order to provide accountability to the different stakeholders.

4. Automatic features, default options, simple information and options, financial incentives and financial education can improve retirement outcomes, since low levels of financial knowledge and behavioral biases can lead people to take inadequate retirement decisions.

5. Increased flexibility regarding the retirement age and progressive public pension and tax rules partially address financial disadvantages of the retirement of population groups with shorter life expectancy. Policies aimed at improving the sustainability of pension systems, in the light of increased life expectancy, will have to consider how individuals in different socio-economic and gender groups may be affected.

6. Survival pensions still play an important role in the improvement of the standard of living after the death of a partner. However, they should not be redistributed from single individuals to couples, or limit work incentives.