Millions of people around the world are at risk of not being able to save enough for their retirement because of the economic challenges caused by the Covid-19 pandemic, according to the Organisation for Economic Co-operation and Development.
Global pension systems were already under pressure because of ageing populations, near-zero interest rates and their impact on returns even before the outbreak of the pandemic, according to the OECD Pensions Outlook 2020 report.
"Shocks from the global health and economic crisis will likely keep economic growth, interest rates and returns low long into the future, putting many people at risk of not being able to save enough for retirement", the Paris-based organisation said.
The pandemic, the worst health crisis since the 1918 Spanish flu, tipped the global economy into its worst recession since the 1930s Great Depression. As countries went into lockdown to contain the virus, unemployment surged with millions of people losing their jobs.
Governments introduced a number of measures to boost the resilience of pension systems, like extending job retention schemes and unemployment benefits, to allow workers to continue accruing retirement benefit entitlements.
However, countries need to be careful when offering measures such as allowing people to tap savings before they reach retirement age to use for short-term income support as these can have a negative effect on future retirement incomes, OECD secretary-general Angel Gurria said.
"Allowing access to retirement savings should be a measure of last resort, and based on hardship circumstances rather than being granted widely and unconditionally,” Mr Gurria said.
"Policymakers should balance the trade-offs between the short-term and the long-term consequences of their responses to Covid-19. Assets earmarked for retirement can support the economic recovery while ensuring that these investments are in the best interests of members."
The OECD also underlined the importance of having long-term savings for emergencies.
“Introducing long-term savings arrangements that combine a savings account earmarked for retirement and a savings account for emergencies could make retirement savings more resilient,” Mr Gurria said.
In November, Ebrahim K. Ebrahim, chairman of the Arab Pensions Conference 2020, called on GCC countries to increase the age of retirement and overhaul public pension systems to offset the economic impact of Covid-19.
“Pension systems in the GCC are still reliant on government-run, pay-as-you-go defined benefit schemes. These programmes are quite generous but are increasingly facing funding deficits, making their long-term viability a mounting concern," he said at the time.
There were 703 million people in the world aged 65 or over, and this number is set to double to more than 1.5 billion by 2050, the United Nations said in a 2019 report.
A number countries, both inside and outside the 37-member OECD, are dealing with secular demographic trends, such as ageing populations that have more people entering retirement and less people entering the workforce, Greg Medcraft, director of financial and enterprise affairs at the OECD, said.
"We have improved longevity, which is a good thing, but it also a means we need to fund retirements for longer," he said. "We are facing structural economic trends such as low productivity growth, stagnant wage growth, a rise in non-standard forms of work, low interest rates and related low return on traditional asset classes.
"Retirement savings and old-age pension systems and their regulators and supervisors have had to contend with the impact of Covid 19, which has really just exacerbated and extended some of these trends and brought new challenges."
Governments should ensure that people continue saving for retirement and avoid selling assets that result in losses when markets suffer sharp declines, the OECD said.
It also recommended that governments introduce targeted measures to ensure that workers in "non-standard" forms of work, such as part-time and temporary employees, self-employed workers and informal, or gig economy, workers have an opportunity to save for retirement.
"[Governments] should have in place a regulatory framework that ensures that risk-sharing arrangements are sustainable and promote fairness among participants, allowing all to enjoy the benefits of risk sharing in terms of risk mitigation and higher expected retirement income," the OECD said.