Pension Reforms Essential in Wake of Financial Crisis Losses
The financial crisis is havng the greatest negative impact on those nearing retirement in the United States, the United Kingdom and Australia, according to the OECD. This is especially true for those whose pension plans are exposed to riskier assets , the OECD says in the 2009 edition of its biennial Pensions at a Glance.
Private pension funds lost 23% of their value in 2008, worth a heady US$5.4 trillion.
Economic output is falling and unemployment is rising, putting pressure on the finances of public pension schemes as well. Governments must continue reforms to ensure that public and private retirement income provision is socially as well as financially sustainable, the OECD says.
With rising unemployment and falling tax revenues squeezing public finances, OECD governments face budget deficits of nearly 9% of national income on average in 2010. This leaves little room for more generous public pensions. Some countries have already had to cut back on future public spending on pensions.
But private pension schemes have also been badly hit by plunging stock markets, and the way they operate needs to change, says the report. Reforms should include better regulation, more efficient administration, clearer information about risks and rewards of different options and an automatic switch to less risky investments as people near retirement, the OECD says.
“Because of the long horizon involved in pensions – with 60 years on average between when people make their first contribution and receive their last benefit – all kinds of pension provision are subject to risks and uncertainties of different kinds. Diversifying pension provision remains the right strategy, in the face of demographic, political, economic and financial risks, according to the report. Rolling back reforms and trying to rely on public pay-as-you-go financed pensions alone is the wrong way to go.”
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