Ageing in OECD countries and the need for private pensions

Stéphanie Payet and Clara SeverinsonThe Working Party on Private Pensions24 October 2011

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.

Spending more time in retirement

60

65

70

75

80

85

90

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Average pensionable age Life expectancy

Average ages for OECD countries

1971M 13.5 / W 18.2

2010M 18.5 / W 23.3

2050M 20.3 / W 24.6

2060 Projected Pension Expenditure

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5

10

15

20

25

Gre

ece

Luxe

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our

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Slo

veni

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Sp

ain

Bel

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Fra

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Hun

gar

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Italy

Aus

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No

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Po

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Fin

land

EU

27

Ger

man

y

Cze

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epub

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Net

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Slo

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Rep

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Sw

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Uni

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Kin

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Den

mar

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Po

land

Irela

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Can

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Est

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DP

Projected expenditure, 2060

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

Estimated Replacement Rates (public pension and mandatory pensions savings)

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

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

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

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

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

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”

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

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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

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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

Further details and contact

Stéphanie Payetstephanie.payet@oecd.org

Clara Severinsonclara.severinson@oecd.org

www.oecd.org/daf/pensions