The Organization for Economic Co-operation and Development warns of the dangers of postponing pension reforms

The Organization for Economic Co-operation and Development (OECD) considers strengthening pension systems based on invested-asset deductions “essential” to improve the sustainability of pensions, and encourages governments to undertake reforms in this area.

In a report published today (“Pension Outlook 2022”), the OECD notes that the current context of uncertainty and the rising cost of living may prompt countries to delay reforms, but stresses the need for policymakers to continue strengthening pension systems.

“Delaying necessary reforms may jeopardize the well-being of current and future retirees,” the document says, adding that it is “necessary” to continue reforms within the scope of pension systems based on deductions invested in assets, such as pension funds and other products promoted by companies or individually.

In this context, he stresses the importance of these schemes (known as the second and third pillars) in improving the value and sustainability of pensions and in building a more comprehensive system.

The document indicates that the total of these assets applied within the scope of reform plans represents about 100% of the GDP of OECD countries at the end of 2021, although there are significant differences between countries.

in 2021 they will account for more than 200% of GDP in Denmark, Iceland and the Netherlands; just over 150% in the United States, Switzerland and Canada; or between 100% and 150% in Australia, the United Kingdom and Sweden; While in 26 other countries, including Portugal, it does not reach 50%.

“Strong pension systems are relevant for protecting the standard of living of older people,” said OECD Secretary-General Matthias Cormann.

“We will have to continue to develop and strengthen a multi-pillar system that combines different types of pension plans that complement each other and diversify risks,” he added.

The report offers some guidance on this topic, suggesting, for example, the creation of conditions that enhance the role of employers in promoting these retirement plans, while emphasizing that this is one of the methods that companies can use to attract and retain workers.

The document states that employers “can play an important role in the creation of funded pension schemes,” specifying that to enhance this role it will be necessary to reconcile their advantages, including the design of retirement plans that respond to the needs of workers, with its “potential disadvantages, i.e. costs.” and the complexity and administrative burden that entails.

The OECD stresses, however, that the goal is to follow this path in a way that enhances the sustainability of the systems, especially taking into account the profile of the demographic development of countries, and not to replace public payments. -you- go ‘- i.e. the system, like the Portuguese one, whereby pensions to current retirees are paid by workers’ deductions.