For many, the economic reverberations of the COVID-19 pandemic raise the question: “what will become of my retirement savings?” Pension plan members will be relying upon their employers for reassurance, and pension plan administrators will be expected to uphold their fiduciary responsibility, especially in trying times. Employees, unable or unwilling to work, may also have questions about their entitlement to benefits under salary continuation, disability, or comparable employee benefit programs.
The member organizations of the World Pension Alliance (WPA) – a global partnership consisting of not-for-profit advocacy associations representing pension plans and providers – share the perspective of the recent OECD Pensions Outlook 2020, which identifies the challenges affecting pension funds in the time of COVID-19. The OECD reports many examples referring to the pandemic’s impact on retirement saving schemes. These include operational disruptions arising from working remotely, a decline in the value of assets as financial markets fall, an increase in liabilities from lower interest rates, limited capability to contribute to retirement savings plans by employees and employers, as well as a reduction in savings as a result of measures aimed at providing short-term relief – such as the early release of retirement savings – which can negatively impact long-term outcomes.
Notwithstanding the pandemic’s effects, pension funds are proving resilient to the challenges of COVID-19 and no significant problems related to liquidity have been reported by the WPA’s members. Based on the common experience of its constituent organizations, WPA recently came up with several pertinent policy recommendations to broadly underline policy directions for supporting workplace pension schemes including;
Key Policy Responses
Pension plans should not be treated as mere financial institutions; policymakers must understand their social character. In particular, the priorities and policy choices of legislators and regulators should reflect the role that such schemes play in social cohesion and the alleviation of old-age poverty, but also in the recovery and stability of economies. In addition, pension funds act in a heterogeneous legal and institutional landscape, depending on the historical, social, and economic particularities of their respective jurisdictions. The rich and diverse landscape of pension schemes across the country is an example of such heterogeneity.
Policymakers need to consider a plethora of factors, including financial depth and size of the economy, income level, and demographic factors, as well as the structure and governance of the pension system.
Recent experience has shown that information is crucial for maintaining trust in pension plans. This means retirement schemes should be active in communicating to members the potential negative consequences of transfers, or other short-term decisions, on their future ability to receive adequate retirement benefits. Finally, in light of the acceleration of digitalization and remote working trends, pension funds should advise their members and beneficiaries of the increased risk of exposure to fraud.
The bottom line
Balancing payments today with tomorrow’s needs is a challenge when designing pension systems at any time – but especially in conditions like we’re experiencing globally today. To ensure our pension systems provide the payouts needed to fund the retirement income of an aging global population, we must ensure that their assets are preserved as much as possible and that they are invested in long-term, secure, and sustainable investments – taking into account broader concepts of risk, which have been growing with climate change and which the COVID-19 pandemic has displayed in force.
