The Organisation for Economic Co-operation and Development claims behavioural biases and low levels of financial knowledge are undermining people’s ability to make appropriate decisions for their retirement.
The OECD’s Pensions Outlook 2018 says automatic features, default options and simple information and choice could combat the lack of financial literacy.
The OECD’s view is that automatic enrolment and automatic escalation of contributions can help people start saving for retirement and achieve appropriate contribution levels.
In addition, default options can help people who are unable or unwilling to choose a contribution rate, pension provider, investment strategy, or post-retirement product such as an annuity.
The economic organisation also says simplifying the decision-making process through, for example, clear pension statements and dashboards, can get people to take action to improve their future retirement income prospects.
The Pensions Outlook 2018 report also maintains that a diversified and balanced pension system incorporating a funded component such as an annuity is important and remains a key policy goal of the OECD.
Other issues argued in the report include that better disclosure, pricing regulations and structural solutions are required to align charges levied with the cost of managing retirement savings.
Making costs and charges more transparent has been a key objective of policy in all OECD jurisdictions, with measures to improve reporting, communication and benchmarking of investment costs and plan charges becoming more prevalent.
OECD principal economist and head of the private pension unit Pablo Antolin says: “Policymakers have made headway over recent years to improve the design of funded pensions to address some of the challenges inherent with low levels of financial knowledge and behavioural biases but there is more to do.
“Ultimately, and for fear of stating the obvious, to ensure higher retirement income, people need to increase retirement savings, pension contributions, and/or the length of the contribution period in both pay as you go and funded pension arrangements.
“This is even more necessary as improvements in mortality and life expectancy lead to ever-longer periods in retirement.”