You are here: Home Knowledge Base Society Financing Old Age Solutions Reduce the exposure of individuals to financial risks in funded systems by improving the governance of the pension industry, amending the design of defined contribution plans by promoting life-cycle portfolios ...
Symposium 2010

Solution for Financing Old Age

The Challenge

People are living longer, more active and more fulfilling lives. But those additional years mean additional costs as pensions are drawn for longer periods and the costs of surgery, medication, healt ...

People are living longer, more active and more fulfilling lives. But those additional years mean additional costs as pensions are drawn for longer periods and the costs of surgery, medication, healthcare and nursing care continue to soar. So the flipside of the scientific triumph over illness and disease is that many people do not have adequate financial resources to support their longer lives with the desired level of comfort.

Reduce the exposure of individuals to financial risks in funded systems by improving the governance of the pension industry, amending the design of defined contribution plans by promoting life-cycle portfolios and greater flexibility in the timing of annuity purchases, and promoting flexible defined benefit plans.

The financial crisis has led to substantial losses in pension fund assets around the world, highlighting the need to limit the exposure of individuals to the financial risks associated with funded arrangements. Pension fund risk management and supervision need to be improved to reduce exposure to unduly risky investments.

Measures in defined contribution plans to limit the impact of financial volatility should include promoting life-cycle portfolios, which require workers to shift part of their balances to less risky assets as they get closer to retirement.

More flexible rules for the conversion of pension savings into annuities or other guaranteed-income insurance policies should be considered. Workers at or near retirement would be allowed to annuitize their assets for a specified period of time, in which a defined part of the fund balance could be withdrawn each month. This would avoid the enforced realization of investment losses by having to liquidate assets when markets are at low points and buy annuities when interest rates are low.

Policy should also make it easier to supply more flexible defined benefit plans, which are customized to individual needs and circumstances but still provide the security that people need.

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