MAIN MESSAGES

Stay the course: complementary private provision for retirement remains a necessity

• Some governments are being pressured to retreat from private pensions…
• …but public PAYG systems face sustainability problems given ageing populations and are also affected by the crisis as unemployment increases
• Private pensions still have a major role to play to maintain balanced sources of retirement income

Saving for retirement is for the long-term

• Some flexibility allowing access to pension assets may be necessary in difficult economic times...
• …but should be strictly controlled to avoid too much ‘leakage’ from the system
• Reducing contributions also risks creating a long-term shortage of pension assets

Supervisory oversight should be proportionate, flexible and risk-based

• Monitoring of pension funds has been strengthened by most authorities (via stricter stress testing, more frequent on-site visits and increased reporting)
• Coordination – with industry, government ministries and other regulators - has also been stepped up
• Supervisory oversight should be risk-based, focusing on the main threats facing pension fund beneficiaries and the pension system as a whole

Funding and solvency rules for defined benefit plans should be counter-cyclical

• Flexibility in meeting funding requirements has been shown by authorities (longer time for recovery plans etc.)…
• …thereby avoiding ‘pro-cyclical policies’ and allowing pension assets to act as long-term investors and potentially stabilising forces within the global financial system

Use the safety net to address issues of insufficient income at retirement

• Public provisioning should provide adequate pensions for low income workers
• ‘Top ups’ for DC accounts are hard to administer affordably or fairly
• Incentives to keep working and to increase contributions would help rebuild pension assets

Improve the design of defined contribution plans, including default investment strategies

• Default, life-cycle funds can help protect those close to retirement
• Guarantees for DC accounts may help – but it is unclear what level is necessary or who would pay for these
• Flexibility should be allowed in the timing of annuity purchases

Improve the governance and risk management of pension funds

• Pension fund risk management needs to be strengthened to reduce exposure to unduly risky investments
• Pension fund governance needs to be improved to avoid exposure to assets not fully understood

Step up disclosure and communication and improve financial education

• National campaigns to explain the long-term nature of pension assets are required to rebuild confidence in pension systems
• Better disclosure of performance and costs is also necessary
• Financial education is needed to help beneficiaries (and to some extent pension fund managers) to improve the understanding of investing, risk and return etc.