OECD Countries Agree on Core Principles for Occupational Pension Fund Regulation


22/07/2004 - More efficient regulation and management of company pension schemes are needed if today’s employees are to enjoy adequate retirement pensions tomorrow. OECD governments have agreed on six Core Principles of Occupational Pension Regulation to assist in meeting those objectives.
At present, many company pension funds are at risk from volatile stock markets. Sharp drops in equity prices can cause huge shortfalls between the current value of pension fund assets and their likely future liabilities. In cases where a company goes bankrupt, employees who have paid into the fund often are left with far less than they contributed or even nothing. The growth of defined contributions schemes is also shifting responsibility on employees, who may not be equipped to face related risks.

To reduce the risk of such situations in the future, the OECD has published a new Recommendation inviting governments to encourage implementation of the six Core Principles of Occupational Pension Regulation. Based on work developed in co-operation with the International Network of Pension Regulators and Supervisors, the Principles cover topics from the funding of company pension arrangements to protection of the rights of beneficiaries. The OECD is also working on other pension-related issues such as pension fund governance and financial education.

The Core Principles cover the following areas:

  • Conditions for effective regulation and supervision
  • Establishment of pension plans, pension funds, and pension fund managing companies
  • Pension plan liabilities, funding rules, winding up, and insurance
  • Asset management
  • Rights of members and beneficiaries and adequacy of benefits
  • Supervision

Among other things, they recommend that:

  • Companies should aim to ensure that the assets of their pension funds fully cover potential liabilities, including information about pension funding in their financial reporting so that investors are made aware of any shortfalls;
  • Companies should create separate legal entities for their pension funds. This will help to ensure, for example, that if a company goes bankrupt, the pension funds of its employees remain safe;
  • The investment of a company pension fund’s portfolio in the shares of that company or its parent company should be prohibited or strictly limited;
  • Employees moving from one company to another should be able to transfer to their new employer’s company pension fund the pension contributions made by themselves or their previous employer on their behalf;
  • All employees, whatever their age, gender, nationality or marital status, should be allowed to participate in the private pension plan established by the employer, as should part-time workers;
  • Retroactive reduction of the value of benefits previously accrued should be prevented
    Employees should be given a wide choice in terms of the type of portfolio that they want their pension fund contributions to be invested in when those employees are responsible for their own investments;
  • Companies should inform their employees regularly and transparently about the status of their pension funds, particularly in cases where scheduled contributions have not been made to the plans.
  • The government supervisors should have the authority to disqualify members of the governing body of pension funds who do not match “fit and proper” tests, and to request the replacement of members who are not carrying out their duties in accordance with legal provisions.

For further information, journalists are invited to contact André Laboul (Tel. + 33 1 45 24 91 27) or Juan Yermo (Tel. + 33 1 45 24 96 62) in the OECD’s Financial Affairs Division, or Nicholas Bray in the OECD's Media Relations Division (Tel. +33 1 45 24 80 90).

See the full text of the Principles and further information on OECD work on pensions


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