In its report on "Design and Delivery of Defined Contribution (DC) Pension Schemes - Policy Challenges and Recommendations", the OECD summarises the challenges policymakers face and recommends key improvements that can help to ensure DC delivers the incomes that individuals need.
“What are the DC challenges for policymakers?
In recent years we have witnessed a dramatic global shift in pensions policy away from public (state) and private employer-sponsored schemes, in which benefits are pre-defined (defined benefit or DB), towards private retirement saving plans, in which benefits depend on the value of accumulated assets (e.g. defined contribution or DC). This has transferred significant risks from the state and employers to individuals, including inflation, interest rate, investment and longevity risk. This transition from DB to DC has been accompanied by a trend towards lower overall contribution rates.
Together these developments raise very significant concerns about the adequacy and security of future retirement income at a time when longevity is increasing and when the global experience of low returns and high volatility, following the 2008 financial crisis, have reduced public confidence in retirement savings.
What is the appropriate policy response?
The policy response to these concerns is to stress to individuals and policy makers that saving for retirement requires a long-term commitment and also that it is important to diversify the sources of retirement income. For DC policymakers, the implementation of full compulsion or auto-enrolment is a major step in the right direction. However, the design of DC systems still needs further improvement.”
Read the report here.