Strong action is needed to make pension systems more inclusive and resilient, secure better outcomes for savers and contribute to sustainable economic growth and innovation, analysis from the Organisation for Economic Co-operation and Development (OECD) has suggested.

According to its report, Pension Markets in Focus 2024, pension assets in OECD countries grew by 10 per cent in 2023, reaching over USD 56trn, which is more than triple the level seen two decades ago.

This growth was predominately driven by positive returns in equity markets and positive cashflows from contributions exceeding benefit payments.

In total, pension assets hit USD 63trn after adding pension reserve funds held by governments, meaning that, despite this asset growth, the 2023 total is 5 per cent below the level seen in 2021.

However, the OECD clarified that while pension providers in the United States and some large pension markets in Europe had not recouped their investment losses by end-2023, in most other, and generally smaller, pension markets assets of pension providers exceeded their 2021 level by end-2023, as they recouped investment losses faster and benefitted from the excess of contributions over benefit payments.

Assets in OECD public pension reserve funds were also above their 2021 level except in a few countries, including the United States, which has the largest public pension reserve fund in the OECD.

However, a second report shared alongside this, the OECD's Pensions Outlook 2024, suggested that further action is still needed to address key coverage gaps.

The report showed that, despite progress, significant gaps in pension coverage remain, particularly for self-employed workers and employees not covered by collective agreements.

Given this, the report stressed the importance of ensuring individuals have access to appropriate retirement income and of innovative approaches, such as options for pooling risks and leveraging home equity.

In particular, the OECD suggested that multi-employer pension arrangements can address these challenges, explaining that, by pooling resources across employers, especially small and medium-sized enterprises, these arrangements can improve accessibility.

To encourage retirement savings, financial incentives can also be enhanced, the OECD suggested, although it cautioned that complex tax rules and irregular updates can undermine their effectiveness.

It therefore said that simplifying these systems and ensuring timely adjustments can ensure incentives remain impactful and equitable, especially for lower-income earners.

The report also stressed the need for balanced investment strategies, such as life-cycle approaches, to manage risks while maximising long-term returns, pointing out that while investing in equities provides better long-term financial outcomes, market volatility can increase risks for those close to retirement.

It also encouraged policymakers against introducing any overly cautious default strategies that could limit retirement income.

In addition to this, the OECD called for re-imagined approach to the payout phase of retirement, arguing that flexible solutions that provide guaranteed lifetime incomes, liquidity for unexpected expenses and options for discretionary spending are "essential".

Investing in financial education is key, according to the report, which found that digital tools, such as pension dashboards, are important to empower savers and foster awareness.

Whilst the report also found that home equity release products can also be a valuable resource for retirees to bolster their financial resources, it warned that strong consumer protections and clear regulation is needed, to ensure these products are accessible, transparent and suited to individual needs.

OECD secretary-general, Mathias Cormann, commented: "Pension systems are a cornerstone of financial security and economic resilience for an ageing population in many countries.

"More inclusive, innovative, and sustainable asset-backed pension frameworks evolving with labour markets are essential to improve retirement outcomes for individuals and ensure the resilience of pension systems."

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