Individuals Must Be Educated and Incentivised to Invest

A report published today by the OECD prescribes 10 recommendations for pension policy-makers

Holly Cook 5 March, 2013 | 3:58PM
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Governments need to better educate individuals about the importance of saving for retirement, and should ensure suitable incentives to do so and promote low-cost savings vehicles in which to invest. Those are the conclusions of a report by the OECD published today, in which policy-makers are recommended to address 10 action points.

The authors of the OECD Executive Summary: DC Design and Delivery report noted the dramatic global shift away from public- and private employer-sponsored schemes (i.e. defined benefit (DB), in which the final benefit to the individual was predetermined) towards private retirement savings plans (defined contribution (DC), in which eventual benefits to the individual depend on the value of accumulated assets); highlighting that this shift represents a transfer of inflation, interest rate, investment and longevity risks from the state and employers to individuals. Add to this trend that fact that countries are witnessing lower overall rates of contribution into retirement savings plans, and you have a problem on your hands. 

“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,” stated the report. 

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites