Stronger Financial Markets and Institutions for Ukraine’s Recovery

6. Guidelines to develop asset-backed pensions in Ukraine

Abstract

This chapter provides guidelines for developing asset-backed pensions in Ukraine. It includes two sections. The first focuses on strategic issues to consider before introducing asset-backed pensions, including the type and legal structure of future pension providers, potential market dynamics, types of services that providers should offer, and costs. The second section focuses on issues to consider once the decision to introduce asset-backed pensions has been taken. They include design elements, ensuring effective regulation and supervision, and proactive communication to build public trust and support. The recommendations in this chapter are based on OECD and International Organisation of Pension Supervisors (IOPS) standards, as well as good practices from OECD and IOPS members.

By diversifying sources of retirement financing, asset-backed pensions can help improve the resilience of pension systems, while also contributing to capital market development. Introducing asset-backed pensions in Ukraine would provide complementary sources of income for retirees and also increase the role of pension funds as domestic institutional investors with long investment horizons.

This chapter discusses issues that policymakers need to consider before introducing asset-backed pensions. It presents international best practices on introducing and developing asset-backed pensions and provides a set of guidelines based on OECD and International Organisation of Pension Supervisors (IOPS) recommendations.

Table 6.1. List of recommendations in Chapter 6

#	Recommendation	Responsible authorities	Implementation timeline	Priority recommendation
1	Diversify the sources to finance retirement by introducing complementary asset-backed pensions.	MSPFU	Medium	Yes
2	Determine the institutional setup of prospective asset-backed pension arrangements.	MSPFU	Medium	Yes
3	Put in place mechanisms that protect the assets managed by pension providers.	NSSMC, Other relevant institutions	Medium	Yes
4	Develop the asset-backed pension framework to ensure effective governance, regulation and supervision of pension providers.	MSPFU	Medium	Yes
5	Assess the costs of introducing asset-backed pensions considering the new operational capacities needed.	MoF	Medium	Yes
6	Ensure that contributions to asset-backed pensions come from new savings and not from contributions diverted from the unfunded PAYG public pension system.	MoF, MoE	Medium	Yes
7	Ensure that the design of the DC pensions plans is coherent, inclusive and set contribution levels such that they are sufficiently high to achieve retirement income objectives.	MSPFU, MoF	Medium	No
8	Design financial incentives to maximise the impact on enrolment and contributions.	MSPFU, MoF	Medium	No
9	Ensure that the design of DC pensions promotes low-cost and cost-efficient retirement arrangements in both the accumulation and pay-out phases.	MSPFU, NSSMC	Medium	No
10	Ensure that all individuals have access to appropriate and sustainable investment strategies and a well-designed default.	MSPFU, MoF, NSSMC	Medium	No
11	Ensure that the design of DC pension plans provides protection against longevity risk in retirement, and that longevity risk is regularly monitored and managed.	MSPFU	Medium	No
12	Build trust in the system by ensuring effective, personalised, regular, consistent and unbiased communication to members, and by promoting awareness and supporting financial education on retirement and pensions.	MSPFU	Medium	No
13	Build a strong regulatory framework that ensures that pension providers manage retirement savings in the best interest of their members.	MSPFU	Medium	No
14	Provide the necessary capabilities, resources, powers and protections to the supervisory authorities to implement the pension regulation and adopt a risk-based approach to supervision.	MSPFU	Medium	No

6.1. Introduction

Ukraine’s pension system includes unfunded pay-as-you-go (PAYG) mandatory public pensions and personal voluntary asset-backed pensions, but it lacks occupational pension plans, whether mandatory, quasi-mandatory (e.g. automatic enrolment) or voluntary (e.g., 401(k)s in the United States). The existing voluntary asset-backed pension system covers only a fraction of the population and does not represent substantial savings in the economy. Only 5.2% of the labour force as of end-2021, and 8.3% of persons covered under the mandatory public PAYG pension system as of July 2024, are members of a voluntary asset-backed pensions. Ukraine should aim to develop an asset backed pension system (mandatory or quasi-mandatory) in which most people participate (OECD, 2025[1]). This would give future pensioners more financial security and contribute to the development of Ukraine’s capital market and long-term growth.

The OECD recommends developing asset-backed pensions to diversify the sources to finance retirement (OECD, 2016[2]) and to strengthen long-term investment and capital markets. Their development should consider that pension providers have a fiduciary duty to achieve the best risk-adjusted returns for their members (OECD, 2016[3]), which requires strong governance and supervision.

Financing retirement through different sources also helps to diversify risks. The mechanisms through which long-term trends and shocks affect different pension arrangements vary. For example, population ageing has distinct impacts on PAYG and asset-backed pension arrangements, or on defined benefits (DB) and defined contribution (DC) pension arrangements. Population ageing may lead to fiscal sustainability pressures for PAYG DB pension arrangements, solvency problems for asset-backed DB arrangements, and adequacy problems for asset-backed DC pension arrangements. A capital market shock affects funded pension systems immediately, while its impact on PAYG systems materialises with some delay, as the shock gradually transmits to the labour market. Having both funded and PAYG pension components therefore helps to reduce the volatility of retirement income.

Moreover, certain risks, such as disability, are better covered through PAYG public pensions, while others, such as labour market incentives, are better covered through asset-backed pensions. Additionally, having assets backing pension benefits provides a pool of assets to invest long-term and strengthen capital markets by, for example, increasing liquidity.

In reforming its pension arrangements, Ukraine could preserve the current system of personal voluntary accounts and integrate it in the overall asset-backed pension system, which would help to maintain the trust of its participants and encourage new ones.

This chapter provides guidelines on how to design, regulate and supervise an asset-backed pension system, based on international good practices reflected in OECD and IOPS recommendations on pensions. These include the OECD Recommendation for the Good Design of Defined Contribution Pension Plans (OECD, 2022[4]), the OECD Core Principles of Private Pension Regulation (OECD, 2016[3]), and the IOPS Principles of Private Pension Supervision (IOPS, 2010[5])

6.2. Developing asset-backed pensions in Ukraine

Developing asset-backed pensions in Ukraine should involve two stages:

• The first stage involves strategic matters policymakers should consider prior to introducing asset-based pensions, focusing on essential structural, legal, and practical considerations, as well as the prospective cost of their introduction. The first section of the chapter discusses these strategic matters (OECD, 2016[3]).

• The second stage is about the design, regulation, and supervision of asset-backed pensions. This phase involves, first: effectively designing the asset-backed pension arrangements and addressing issues such as whether the system should be mandatory, quasi-mandatory or voluntary; determining how much individuals will have to contribute; identifying the type and cost of financial incentives to put in place; establishing cost-efficient pension plans; and designing the investment options available, defaults, and the structure of the retirement phase that will determine how accumulated assets can be used to finance retirement. Second, this phase requires: a strong regulatory framework; that regulators and supervisors be granted adequate power and functions and that the right procedures and processes are in place to regulate and oversee the new asset-backed pension arrangements: and that pension providers are aware of what their role is. Policymakers also need to consider how to communicate about the reform to the population to build support, including through media.

Following implementation of the reform, policymakers would need to evaluate the process and address shortcomings.

Recommendation 1: Diversify the sources to finance retirement by introducing complementary asset‑backed pensions.

6.3. Stage one: Strategic considerations prior to introducing asset-backed pensions

Policymakers need to determine the institutional set-up of potential asset-backed pension arrangements. This includes deciding the type of providers that will be authorised to offer asset-backed pension plans, assessing aspects such as cost, and market concentration, choosing the legal structure of providers; selecting the types of services that providers will provide; and building trust in the new system. The authorities also need to evaluate the cost of introducing asset-backed pensions. The following section discusses issues related to the institutional set-up and costs.

6.3.1. Institutional set-up

There are trade-offs in the choice of pension providers. The main decision is whether pension providers should be part of existing financial entities, or whether to set up independent standalone pension entities (OECD, 2022[6]). The experience of OECD countries ranges from situations where existing entities such as a bank, mutual fund, or insurance company become providers (e.g. Korea) to situations where asset-backed pension providers are independent, standalone entities, and not owned by providers of other financial services (e.g. Australia). In between are situations where pension providers are independent entities that retain ties to existing financial services providers (e.g. Chile). To decide within this range of options, policymakers need to look at factors such as:

• the cost to members

• what would be convenient and simple given the country’s starting point

• which providers would the public trust

• how to avoid market concentration, and

• how to avoid a market structure in which clients are captive and cannot choose or change provider.

The choice of the type of legal structure of pension providers is also an important feature to consider. There are three main types: fund type, contractual type, and trust type. Examples of how each works include Australia, the United Kingdom and the United States. Related to this is the choice between for-profit and not-for-profit pension providers. Contractual types involve for-profit, while fund or trust types can be organised around either.

Pension services

Policymakers also need to consider the many services that pension providers may dispense, such as collection, payment, investment management, and insurance. Entities that provide all pension services may not need to subcontract which can simplify the system and avoid the payment of fees to the various subcontractors (e.g., Chile). However, having specialised entities may be more cost effective, and therefore result in better quality services (e.g., Korea). It can also reduce barriers to entry that come with having to provide bundled services.

Governance arrangements

Designing good governance is another crucial strategic consideration when introducing asset-backed pensions. Governance regulation should aim to avoid a situation where board members’ responsibilities are unclear, where stakeholder representation on boards leads to poor outcomes for members, and where governing boards have conflicts of interest. The OECD Core Principles of Private Pension Regulation establishes regulations around membership of boards and impose minimum ‘fit and proper’ requirements, suitability standards, and penalties for breaches of duty (OECD, 2016[3]).

Pension fund access to a well-functioning domestic capital market

Asset-backed pensions can contribute to the development and strengthening of capital markets by providing a pool of long-term investment and improving liquidity. However, incomplete capital markets, markets that lack depth, and high inflation can limit the range of financial instruments pension providers can invest in when they need to diversify investments and match the time structure of their assets. There is also a risk that inflation erodes the value of nominal bonds. It is therefore important that introducing asset-backed pensions in Ukraine is accompanied by capital market development (as discussed in Chapters 2 and 3).

Some OECD countries (e.g. Chile) have devised strategies to manage investments through quantitative restrictions in the early years of asset-backed pension development, while also developing or deepening domestic financial markets. However, investment regulations that concentrate retirement savings in bond markets in the early years may increase the portfolio’s exposure to default, market concentration, and inflation. Allowing offshore investment, issuing specialised bonds, and introducing the prudent person approach gradually, could attenuate this.

Regulatory and supervisory framework

Regulatory changes also entail an overhaul of the supervisory arrangements in place. This can include setting up a specialised supervisor for the new asset-backed pension arrangements and clearly defining its key supervisory duties, which will notably help build trust in the system. The IOPS Principles of Private Pension Supervision provide detailed guidance on measures to build such trust (IOPS, 2010[5]). The principles cover:

• the strategic objectives of supervisory oversight

• the operational independence of the supervisor

• the legal power and resources needed for effective supervision

• the supervisory regime that would apply to prospective pension providers, and

• the confidentiality of information the supervisor holds.

The principles also recommend proportionality and consistency of investigatory and enforcement requirements, and provide guidance on the governance, transparency and interactions of the supervisory authority with stakeholders.

The authorities also need to decide how to finance the supervisory authority. It could be tax-financed, but this would make it dependent on political and economic cycles, or financed through levies, but this may create problems of supervisory capture. Alternatively, it could set up an endowment fund (e.g. MPFA of Hong-Kong (China)). This would make the supervisor immune from political and economic pressures. The endowment fund would have to be properly audited, preferably by an international organisation(s), but not by the one providing funding.

Measures to protect pension assets

Policy makers need to put in place mechanisms that protect the assets managed by pension providers which would help build individuals’ trust in the asset-backed pension system and support for change. This requires legislation to protect members from insolvent providers or sponsors, measures to ring-fence assets, and clear and transparent audit rules. Policymakers can commission independent reviews of the system and develop public information campaigns to educate the public and inform other stakeholders such as the media about the need for reform and complement such efforts with targeted engagements with key actors such as social partners.

Addressing these strategic priorities prior to introducing an asset-backed pension system will help establish a reliable institutional set-up, including an independent and conflict of interest-free governing body of pension providers, with capital markets developing in parallel and savings being invested in a range of instruments. The supervisor will promote the stability, security, and good governance of pension funds and the legal system will protect assets and uphold members’ rights. Overall, this will build public support for reforms and trust in the new system.

6.3.2. Evaluating the cost of introducing asset-backed pensions

Assessing the cost of reform is another essential step in the process of introducing a new asset-backed pension system Policymakers need to estimate and finance the costs of developing asset-backed pensions while bearing in mind the impacts those changes may have on individuals. Reforms can lead to making some individuals worse off than others, which calls for mechanisms like subsidies and state matching contributions to balance their effect. The costs of reform will depend on the extent to which an asset-backed system replaces an unfunded one, and on the administrative costs that arise from introducing a new system.

Contributions to asset-backed pensions should come from new savings. Diverting contributions from unfunded PAYG public pensions to asset-backed pensions should be avoided as it will reduce the revenues accruing to the unfunded PAYG pension system while the unfunded liabilities remain, potentially leading to future fiscal problems as the pension deficit increases. This is what happened in Poland, leading to a reversal of the asset-backed pension system.

Administrative costs may also arise due to greater needs for regulation, supervision, guarantees, or financing. Operational capabilities may need to be upgraded to handle new or reformed asset-backed pension arrangements. Policymakers may need to reform or update government agencies’ functions, for example by building new operating systems, introducing new practices, training staff, and setting up collaboration mechanisms between different agencies. Policymakers also need to consider key aspects of account administration, such as contribution collection, record-keeping, and data reporting, whether such functions should be centralised or undertaken by providers, and what data they need to collect. All of these may increase costs.

Recommendation 2: Determine the institutional setup of prospective asset-backed pension arrangements.

Recommendation 3: Put in place mechanisms that protect the assets that pension providers hold.

Recommendation 4: Develop the framework to ensure effective governance, regulation and supervision of pension providers.

Recommendation 5: Assess the costs of introducing asset-backed pensions considering the new operational capacities needed.

Recommendation 6: Ensure that contributions to asset backed pensions come from new savings and not from diverting contributions from the unfunded PAYG public pension system.

6.4. Stage two: Design, regulation and supervision considerations when introducing asset-backed pensions

The second stage in introducing asset-backed pensions involves decisions about the role asset-backed pensions would play in the overall pension system, its design, regulation and supervision, as well as communication. It includes addressing issues such as whether the new system will be mandatory, quasi-mandatory or voluntary; how much individuals will have to contribute; the type of financial incentives to put in place; and establishing cost-efficient plans, the investment options available, defaults, and the structure of the retirement phase that defines how assets accumulated can be allocated to finance retirement.

Stage two also requires explaining and communicating the reform to society. One of the most important actors at this stage is the media, who needs to be provided regular and reliable information to understand the reform, including the rational and expected outcomes. The media can play an important role in building public trust in the reform and that people’s best interest is taken into account

Stage two also requires developing a strong regulatory framework. Regulators and supervisors should be granted adequate powers and functions, and the adequate procedures and processes should be in place to regulate and oversee the new asset-backed pension arrangements. Pension providers should also be made fully aware of their role. This section provides policy considerations covering four themes:

• designing asset-backed pensions according to international good practices

• proactively communicating to society to build support and trust

• introducing regulatory measures, and

• introducing supervisory measures.

6.4.1. How to design asset-backed pensions according to international good practices

The OECD Recommendation for the Good Design of Defined Contribution Pension Plans (OECD, 2022[4]) outlines ten recommendations for the design of asset-backed pension systems based on international good practices. The first three recommendations address the role that asset-backed pensions would play in the overall pension system.

Role of asset-backed pensions in the overall pension system

The first recommendation is that the design of asset-backed DC pensions should be coherent. It should be coherent with the pension system as a whole and within the DC system between the phase in which people save and accumulate assets and the phase in which they receive pension payments.

DC pensions are complementary to the other components of the overall pension system (e.g. PAYG public pensions). Designing all the components of the pension system such that they complement each other will make the pension system more resilient against shocks and more stable, providing certainty and instilling confidence over the long term.

The design should also consider that there is an accumulation phase, when people work and save for retirement, and a ‘pay-out’ or retirement phase, when people retire and get a pension. The design should be such that the two phases are complementary. Finally, policy makers should regularly assess whether asset-backed pensions meet their retirement income objectives, considering broader economic and demographic factors and risks.

The second recommendation is to make DC pensions as inclusive as possible. Asset-backed pensions should be available for everyone, and their design should promote broader participation. Mandatory enrolment tends to achieve higher enrolment and participation rates. However, automatic enrolment, covering all employees and possibly the self-employed, can enhance participation while giving individuals the possibility to opt out. Financial incentives, using default options and simplifying the options for the contribution rate, the investment strategy and the pay-out, encourage participation. Policymakers should avoid eligibility criteria that may disadvantage specific groups such as women and people in non-standard forms of work.

Policymakers should be careful when designing DC pensions with measures like guarantees and early access to funds, which people tend to favour, and which may may make saving for retirement more attractive. They have a cost and can reduce income available at retirement, therefore impacting retirement income adequacy. Legislating in advance that any early access to retirement savings should be a measure of last resort and based on clearly defined and specific individual hardship circumstances would help to avoid legislating in the heat of the moment (OECD, 2022[7]).

The third recommendation is to ensure that total contributions are sufficiently high to achieve retirement income objectives. Total contributions should consider the overall system, both the PAYG and the asset-backed components. For example, if the PAYG public pension system provides an income in retirement that is 50% of the final salary, and the objective is for a retirement income around 70% of final salary, the contribution rate in asset-backed pensions over a 35-year career may need to be around 7%, depending on investment returns, fees and life expectancy at retirement. The bigger the planned weight of the asset-backed pension system in the overall pension system, the higher the contribution rate may need to be. Lengthening the contribution period, for example by starting to save for retirement earlier or postponing retirement, improves the chances of achieving the desired retirement income, particularly in an environment of increasing life expectancy.

There are several ways to promote individuals’ contributions. Employer matching contributions, automatic and gradual increases to contribution rates, and flexibility regarding the level and timing of voluntary contributions allowing individuals to save based on their capacity, can all help individuals reach appropriate contribution levels over their career. Technology can also help individuals contribute more by simplifying the contribution process, facilitating the use of behavioural nudges for saving, and providing access to affordable financial planning.

Incentives to maximise enrolments and contributions to asset-backed pensions

The fourth recommendation focuses on the design of financial incentives to maximise the impact on enrolment and contributions, reinforcing recommendations two and three. The OECD policy guidelines for improving the design of financial incentives to promote savings for retirement (OECD, 2018[8]) highlight that: tax rules should be straightforward, stable and common across retirement saving plans to avoid confusion; the design of financial incentives should reflect the retirement saving needs and capabilities of different population subgroups as middle-to-high income earners tend to respond to favourable tax treatment, while low-income earners may be more likely to respond to matching contributions and fixed nominal subsidies; and incentives should be updated regularly to maintain the attractiveness of saving for retirement.

Managing costs to ensure good returns for asset-backed pension members

The fifth recommendation focuses on costs as they reduce savings and thus impact how much people need to contribute and the adequacy of retirement income. The design of DC pensions should promote low-cost and cost-efficient retirement arrangements in both the accumulation and pay-out phases. Initiatives to foster competition and to improve disclosure, comparability, and transparency contribute to lower costs and increase cost efficiency. However, appropriately designed pricing regulations and structural solutions that protect members’ interests can also help. Structural solutions include tender mechanisms (e.g. Chile), allocation of individuals to quality low-cost providers (e.g. New Zeeland), cost-efficient consolidations (e.g. Australia and the Netherlands), large industry-wide non-profit providers (e.g. Netherlands), and having an independent centralised provider (e.g. Lithuania). Measures to promote cost-efficiency should balance the benefits of fair competition and economies of scale with the risks of an oligopolistic outcome.

Pension providers need to charge fees for the services they provide. However, fees charged to participants should be aligned with the costs providers incur and the value provided to participants (OECD, 2018[9]).

Setting appropriate investment strategies and the right default pension option

The sixth recommendation addresses the investment of individuals’ savings for retirement and argues that policymakers should ensure that all individuals have access to appropriate and sustainable investment strategies and a well-designed default. DC pension plans provide investment choice, but for people unwilling or unable to choose, it is essential to design and offer a default investment strategy in line with the objectives of the DC pension system and the structure of the pay-out phase (OECD, 2020[10]). For example, life cycle investment strategies can be well suited to encourage members to take on investment risk when young, and to mitigate the impact of extreme negative outcomes when close to retirement. Additional investment strategies with different investment horizons and risk profiles should be offered for people willing to choose their investment strategy. There should also be a process to assess and monitor the appropriateness of different investment strategies against policy objectives and the many risks affecting their long-term sustainability, including labour, financial, economic, demographic, environmental, social and governance (e.g. corruption, conflict of interest) risks.

Managing risks to pensioners during the payout phase

Recommendations seven and eight focus on the payment or retirement phase and deal with longevity risk. The design of DC pension plans should ensure protection against longevity risk in retirement, and policymakers should facilitate the regular monitoring and management of longevity risk.

One of the main goals of pensions is to provide life-time income and thus protect individuals against longevity risk, i.e. outliving their retirement income. PAYG public pensions provide life-time income. DC pension plans should also provide some level of lifetime income as a default, unless other pension arrangements already provide for sufficient lifetime pension payments.

Annuities with guaranteed payments or non-guaranteed arrangements where longevity risk is pooled among participants provide lifetime income (OECD, 2022[6]). The choice of the type of arrangement will depend on the desired balance between the cost of guarantees and the stability of retirement income. Annuities provide protection against longevity risk but fail to provide flexibility. Programmed withdrawals or drawdowns provide flexibility but fail to provide protection against longevity risk. Partial or deferred lifetime income vehicles combined with programmed withdrawals allow for flexibility and protection against longevity risk.

Full lump-sums fail to provide life-time income and convert retirement savings into long-term tax-favoured investment vehicles. Therefore, savings accumulated to finance retirement should not be taken in the form of lump-sums, except for low account balances or extreme circumstances.

Providers of lifetime pension income should use appropriate and regularly updated mortality assumptions that take into account future improvements in life expectancy (OECD, 2022[11]). Public authorities should make regularly updated population mortality data available to provide a reference for the setting of mortality assumptions. This data should be as granular as possible to facilitate appropriate assumptions and the development of sustainable retirement solutions for specific populations, for example to provide better value to lower socioeconomic groups or those in poor health. Standardised, publicly and readily available data can promote effective risk management and facilitate the creation of standardised longevity indices that can be used to price the transfer of longevity risk to a third party.

6.4.2. Communicating to society to build support and trust

A good national communication strategy is essential to build support for the introduction and development of asset backed pensions, as it will help people understand the reasons for the reform and build their trust that their best interest is a priority. The last two recommendations of the OECD Recommendation for the Good Design of DC Pension Plans focus on communication and financial literacy.

Recommendation nine stresses the importance of ensuring effective, personalised, regular, consistent and unbiased communication to members. Communication with members should be clear and simple, with minimum jargon, especially when explaining potential options. It should also be timely and aligned with a purpose. Personalised information through online platforms or pension statements should ideally combine all pension sources and include projections to update members and nudge them to take action to boost their pension adequacy. Projections should focus on potential retirement income levels in real terms, account for the likelihoods of different outcomes, and convey risks to plan members. Assumptions and methodology should be fully disclosed. Comparison tools should provide standardised information to allow users to compare performance, costs, investment allocation, and other plan features like retirement payment options. Policymakers should ensure that information provided by financial advisors and digital advisory services is accessible, accurate and unbiased. The IOPS Good Practices for designing, presenting and supervising pension projections reinforce the above communication considerations and provide guidance from a supervisory perspective (IOPS, 2022[12]).

Recommendation ten encourages policymakers to promote awareness and support financial education on retirement and pensions. Policy makers should establish national financial education strategies, which include a focus on raising awareness and knowledge of the importance of saving enough for retirement, the different options available, and risks like longevity. Financial education is a continuous process, which should include focused messages that evolve along with savings objectives at different life stages. Public authorities should seek to improve people’s understanding of how the pension system works and explain pension reforms, as well as their economic rationale, through various means such as communication campaigns.

Lessons from other countries’ experiences when communicating about their pension reforms suggest that (OECD, 2014[13]):

• Communication should be clear and simple to make it most effective and should avoid complex concepts that can overwhelm people.

• National communication campaigns should be driven by and evaluated against clear, realistic and well-targeted objectives.

• Policymakers have a role to play in supporting people who must make choices, by providing information in a clear way, making digital tools available, and potentially providing advice. Consistent and standardised communication helps people choose investments (OECD, 2020[14]).

• Policymakers can make use of different distribution channels to disseminate information and tailor it to audiences. Different distribution channels include traditional media like the press and social media.

• Policymakers should control the narrative about the reform and ensure that communication does not lead to unrealistic expectations, which can erode people’s confidence in the schemes over time.

• Timeliness makes communication campaigns more effective.

• Any communication on reforms that rely on default rules should complement that rule, such that the communication and policy strategies are aligned.

• Policy makers should ensure that they include employers in their communication strategy, and bear in mind the communication needs that come with their added responsibilities.

6.4.3. Regulating asset-backed pensions

The regulatory framework for pension providers needs to ensure that they manage the retirement savings of individuals in their best interest. A strong regulatory framework fosters public trust in the pension system, which is essential for its long-term functioning.

The OECD Core Principles of Private Pension Regulation guide policymakers and regulators on regulating asset-backed pensions (OECD, 2016[3]). They cover several areas:

• The first principle addresses the conditions for effective regulation.

• Principles two, three, four and five provide guidance on:

  • key elements defining a robust regulatory framework, the establishment of pension plans, pension funds and pension entities

  • the governance of governing bodies

  • investment and risk management by pension providers, and

  • plan design, pension benefits, disclosure and redress.

• Other principles provide guidance on access, cost-efficiency, funding, competition, and portability.

6.4.4. Supervising asset-backed pensions

The supervision of pension funds and pension providers is essential to ensure that they manage people’s retirement savings in their best interest and avoid conflict of interests. The IOPS Principles for Private Pension Supervision are a useful guide for supervision based on international good practices (IOPS, 2010[5])

The supervisory framework should establish objectives and responsibilities and oversee the implementation of the pension regulation. Supervisory authorities should monitor and be adaptable to circumstances and have adequate resources and powers. Supervisory authorities should be independent and protected against any legal action while fulfilling their duties

Pension supervisory authorities should adopt a risk-based approach, apply proportionality and be consistent. They should have a strong governance and have implementation and assessment processes in place. They should consult and co-operate with the entities under supervision and other stakeholders. Finally, their work should be confidential but transparent, and they should communicate actively.

Recommendation 7: The design of the DC pensions plans should be coherent, inclusive and set contribution levels such that they are sufficiently high to achieve retirement income objectives.

Recommendation 8: Design financial incentives to maximise the impact on enrolment and contributions.

Recommendation 9: The design of DC pensions should promote low-cost and cost-efficient retirement arrangements in both the accumulation and pay-out phases.

Recommendation 10: Ensure that all individuals have access to appropriate and sustainable investment strategies and a well-designed default.

Recommendation 11: Ensure that the design of DC pension plans provides protection against longevity risk in retirement, and that longevity risk is regularly monitored and managed.

Recommendation 12: Build trust in the system by ensuring effective, personalised, regular, consistent and unbiased communication to members, and by promoting awareness and supporting financial education on retirement and pensions.

Recommendation 13: Build a strong regulatory framework that ensures that pension providers manage retirement savings in the best interest of their members.

Recommendation 14: Provide the necessary capabilities, resources, powers and protections to the supervisory authorities to implement the pension regulation and adopt a risk-based approach to supervision.

References

[12] IOPS (2022), Good Practices for designing, presenting and supervising pension projections, IOPS Publishing, https://www.oecd.org/content/dam/iops/en/iops-principles-and-guidelines/IOPS-Good-practices-for-designing-presenting-and-supervising-pension-projections-2022.pdf.

[5] IOPS (2010), IOPS Principles of Private Pension Supervision, IOPS, https://www.iopsweb.org/en/resources.html.

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[9] OECD (2018), “Pension costs in the accumulation phase: Policy options to improve outcomes”, in OECD Pensions Outlook 2018, OECD Publishing, Paris, https://www.oecd.org/en/publications/oecd-pensions-outlook-2018_pens_outlook-2018-en.html.

[16] OECD (2018), “Policy guidelines to improve the design of financial incentives to promote savings for retirement”, in Financial Incentives and Retirement Savings, OECD Publishing, Paris, https://doi.org/10.1787/9789264306929-9-en.

[3] OECD (2016), Core Principles of Private Pension Regulation, OECD Publishing, Paris, https://doi.org/10.1787/c950bb36-en.

[2] OECD (2016), OECD Pensions Outlook, OECD, https://www.oecd.org/en/publications/oecd-pensions-outlook-2016_pens_outlook-2016-en.html.

[13] OECD (2014), “Pension communication: pension statement and national campaigns”, in OECD Pensions Outlook 2014, OECD Publishing, Paris, https://www.oecd.org/content/dam/oecd/en/publications/reports/2014/12/oecd-pensions-outlook-2014_g1g49536/9789264222687-en.pdf.