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Workers are rightly worried about the fall in the value of the private pension savings and governments need to step up their efforts to provide social safety nets, warns OECD
Paris (13 February 2009) – The Organisation for Economic Co-operation and Development (OECD) believes that workers are rightly worried about the fall in the value of the private pension savings and there is growing pressure on governments to act.
According to its new publication entitled Private Pensions Outlook, the OECD estimates that the loss in private pension assets in the year to December 2008 has increased to US$ 5.4 trillion, up from US$ 5 trillion until October. The average pension fund had a negative rate of return of 23 percent over the year.
The OECD is calling for the use of public safety nets to address the impact of the crisis as well as structural changes in the way private pensions are managed, regulated, and promoted.
Policymakers also need to step up action to improve the way both defined benefit and defined contribution systems are regulated. For defined benefit plans, regulations should encourage the build-up of funding buffers in good market conditions and provide more flexibility during a period of market turmoil. Investment rules for defined contribution plans should promote a reduction in exposure to risky assets substantially as the worker ages, especially in countries where such plans are a major component of retirement income.
With respect to specific references to Canada’s pension system, the report makes the following references:
- In Canada, as well as countries like Finland, France, and Korea, assets in defined benefit plans have actually grown faster than those in defined contribution plans over the past five years.
- Countries with large numbers of small defined contribution plans like Canada and the United Kingdom have higher operating costs as a percentage of assets managed than countries with only a few funds offering collective pension arrangements
- The analysis of benefit adequacy and security indicates that individuals in Canada and some other OECD countries may run the risk of not having enough income in retirement to maintain the same standard of living as they enjoyed while in active employment. Even workers with a full contribution record of 40 years or more in both the public and private pension system, and earning average wages will be unlikely to reach a replacement rate greater than 60%.