Public pension plans worldwide should be run as "private and autonomous institutions" that more closely resemble corporate pension plans, according to a study released Nov. 7 by the Organization for Economic Cooperation and Development, London.
The OECD study found that governments should introduce partly or fully funded pension plans, rather than relying on pay-as-you-go inflows from taxpayers, and should submit "to the same regulatory and supervisory framework as applied to private sector workers." This would "insulate pension funds' decisions from political pressure and inappropriate interference from the government," the study concluded. Public sector pensions are more likely to be mismanaged when not run like corporate plans, because investments are more likely to be based on political, rather than economic, reasons, according to the study. That leaves taxpayers to pay for unfunded liabilities. To alleviate funding shortfalls, the study also suggested more defined contribution plans be introduced.
The semiannual report examined six major public-sector pension plans in Australia, Canada, Japan, the Netherlands and the United States, including the California Public Employees' Retirement System, Sacramento, and Stichting Pensioenfonds ABP, Heerlen, Netherlands.