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OECD calls for better protection of occupational pension systems

 

10/05/2007 - OECD countries have agreed new guidelines for governments and regulators designed to improve how certain types of pension funds are run with a view to making employees’ pensions more secure.

The OECD Guidelines on Funding and Benefit Security in Occupational Pensions contain a series of recommendations concerning regulation of the funding of occupational pension plans, and in particular defined benefit pension schemes. Such schemes are common in countries like Canada, Germany, Japan, the Netherlands, the United Kingdom and the United States, though many are now closed to new employees.

“People are living longer and need to be sure that their pensions are safe,” OECD Secretary-General Angel Gurría commented, “These guidelines will be helpful to OECD countries to ensure that occupational pension plans offer secure retirement benefits to their members.”

Issues covered by the guidelines include the funding and valuation of pension plans and protection of employees’ interests in company pension schemes in the event of their employer or the company that manages their pension plan going bankrupt. The guidelines also call on tax authorities to consider raising maximum funding levels, so as to allow pension funds to build up reserves that will protect them against a downturn in asset values.

Among other things, they propose that regulators:

  • Guard against the impact of corporate bankruptcy by promoting funding levels high enough to ensure that a fund’s assets can meet its potential liabilities;
  • Encourage pension funds to estimate more accurately their liabilities, for example by allowing for increasing life expectancy and for the adjustment of benefits in line with the cost of living (indexation);
  • Set a reasonable maximum timeframe, such as seven years, for reducing any funding gap;
  • Put in place rules that determine to what extent the employer is responsible for filling any funding gap if a pension plan closes.

The guidelines build on a substantial body of research carried out by the OECD over the past several  years. They have benefited from input from the pensions industry, business and trade unions. They will be reviewed in three years during which time the OECD will monitor the evolution of funding levels.

See the full text of the guidelines.

For further information, journalists are invited to contact Juan Yermo (Tel. + 33 1 45 24 96 62 or + 33 6 84 06 28 49) or André Laboul (Tel. + 33 1 45 24 91 27), OECD Financial Affairs Division, or Spencer Wilson, OECD Media Division (Tel. + 33 1 45 24 81 18).

 

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