Pensions Under Pressure Because of Slow Economic Growth

11 Dec , 2014

Faltering economic growth and low investment returns are increasing the pressure on pension systems in developed countries in a fresh warning from the Organisation for Economic Co-operation and Development.

We already have a problem with an ageing population, but that is being compounded by low investment returns, which is in part, due to low interest rate levels set by central banks in order to combat the fallout from the 2008 financial crisis.

In the report, called Pensions Outlook 2014, the think-tank reported that the crisis had driven many countries to speed up reforms to make their state pension systems more financially sustainable. Reforms seen in the UK have included a sharp increase in pension contributions, increasing the statutory retirement age amongst many others.

Some countries, including the UK, have also introduced reforms to the private pensions in order to strengthen them too, for example, putting into place an auto-enrolment program which has successfully raised pension coverage.

However, the OECD has called for further measures to be imposed in an effort to strengthen the regulatory framework for private pensions and annuity providers so that they are equipped to deal with the uncertainty surrounding improved mortality rates. They believe that regulators should ensure providers use regularly updated life expectancy charts, which incorporate future improvements, as a failure to account for these can result in shortfalls of 10% or more of the pension and annuity liabilities.

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Interest Rates, Long term Savings, QROPS, Retirement Planning, UK, UK Pensions