Pension providers around the globe should boost retirement security for their participants by ending Covid-19 emergency measures once the crisis abates, the Organisation for Economic Co-operation and Development (OECD) is urging in a report released today.
The global think tank with representatives from 37 national governments warned measures to provide short-term relief during the crisis such as allowing employers and individuals to defer, reduce or stop pension contributions, as well as those allowing individuals to access their retirement savings early could harm long-term retirement security.
The authors also cautioned calls on pension providers to invest in local businesses, infrastructure projects, and post Covid-19 recovery projects could increase the risk profile of retirement savings portfolios.
A number of times in the 212-page report, OECD stressed the need for plan providers to limit early withdrawals:
“Retirement savings arrangements could be more resilient and address the challenges posed by the need
of early withdrawals brought about by COVID-19 if long-term savings arrangements include both a savings
account earmarked for retirement and a savings account for emergencies.
The group also called upon plan providers to restrict the ability of participants to change investment strategies often, pointing out frequent switching can lead to lower retirement incomes.
The authors added frequent switching by individual plan members can also be dangerous to a plan as a whole and national economies.
“The possibility of frequent switches in large volumes leads pension providers to hold more liquidity, which may prevent them from taking a long-term view of their investment strategy and lead them to forego earning higher potential term and liquidity premiums…Frequent trading in high volumes can destabilize the market by affecting asset prices over the short term and increasing market volatility,” OECD said.
To strengthen the role of retirement savings plans and provide better retirement income security to part time , temporary and self-employed workers, vesting periods should be minimized and regulators and policy makers should facilitate the portability of pension rights and assets, OECD said.
However, the authors cautioned a one-size-fits-all approach across workers may not be appropriate, given the heterogeneity of workers in non-standard forms of work.
“Some workers in non-standard forms of work have stable and high income and may be able to use already existing retirement savings arrangements, such as licensed
professionals (e.g. doctors or lawyers). However, some other workers may have a more limited access to retirement savings plans and a reduced capacity to save due to their working arrangement.
Part-time permanent and temporary workers could benefit from the same enrolment rules into occupational plans as full-time permanent employees by avoiding eligibility criteria based on earnings or hours of work, the study suggested.
Without mentioning target date funds by name, the authors said life-cycle investment strategies are not a panacea for retirement security investing, as the reduction of the share of risky assets also reduces expected returns and thereby expected retirement income.
— to www.forbes.com