Reforms should be better communicated to workers in efforts to combat behavioral biases and inadequate financial knowledge that undermines participants' retirement decisions, the Organization for Economic Cooperation said in its latest pensions outlook report.
The OECD called on combining funded and pay-as-you-go retirement plans, automatic mechanisms and a strong safety net for pensioners to boost retirement outcomes.
The annual report said governments should use a number of tools — including automatic enrollment, auto-escalation and default strategies — to counter inertia. Countries should introduce funded arrangements gradually when diversifying pension systems, especially when contributions will partially or fully replace an existing pay-as you-go system, the intergovernmental organization said.
But the OECD warned that transparency-inducing legislation should be supported by pricing regulations and structural solutions as well as benchmarking and linking of investment costs more closely with investment performance. The report argued it is "not enough to align costs and charges."
Policymakers worldwide could also improve financial incentives for low-income earners by using non-tax incentives such as matching contributions and fixed nominal subsidies to better tailor them to their needs, according to the report.
"People's trust in pensions systems is undoubtedly low," Pablo Antolin, principal economist and head of the private pension unit, said in a news release.
"There remains significant concern about whether institutions managing their retirement savings actually have their best interests at heart and will deliver on their promises once they reach retirement age."
To ensure higher retirement income, workers need to save more and for longer periods, regardless of the type of plan — a strategy that's made more imperative by increasing life expectancies, Mr. Antolin said. But it's also necessary to "ensure that lower socioeconomic groups are not penalized in retirement for having shorter life expectancies."