The Organisation for Economic Cooperation and Development (OECD) is developing a new implementation toolkit to support policymakers and pension providers in designing retirement payout solutions, to address growing complexity and individual variability in post-retirement needs.

The announcement, by OECD private pensions policy analyst, Jessica Mosher, yesterday, 10 April, at the PensionsEurope Annual Conference in Bucharest, comes amid rising interest among European pension policy makers in introducing default options for the payout phase of pensions.

However, she cautioned that pension policymakers need to be "careful" about introducing default products in the payout phase as this could cause “potential harm” to savers.

“Policymakers often like the idea of defaults as an easy way to help people do what they ‘should’ do,” she said.

“But we need to be really careful about introducing defaults that may lead to negative outcomes. While a lifetime income becomes a good option, probably the best income in most cases, there are situations where that is not going to be the case."

Mosher noted that while lifetime income products can offer valuable protection for many retirees, they are not suitable for everyone.

“This is particularly true where people haven’t saved enough to purchase a product that provides a lifetime income, or where people’s health is poor and they will not benefit from the longevity insurance, or where the market is bad, and we don’t want to be locking people into a lower guaranteed income for life if the market has crashed,” she continued.  

“Maybe there are also other considerations, such as the timing of payments and how that can be best for individuals, so flexible access at the beginning to their entire savings.”

In her keynote, Mosher also highlighted several critical areas the toolkit will address, including longevity protection, thoughtful product design, encouraging both demand for and supply of lifetime income, and ensuring long-term sustainability and effective delivery.

She underscored the importance of tailoring payout products to individuals’ needs, taking into account factors such as overall retirement income, other sources of financial support, homeownership status, and healthcare requirements.

She said that once these are looked at, this should “inform the products we are making available at retirement and highlight what risks we need to manage in particular”.

The introduction of this toolkit builds on the OECD's report, Pension Markets in Focus 2024, released at the end of last year, which looked at improving asset-backed pensions for better retirement outcomes and more resilient pension systems.

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