This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on Dec 7 - 13, 2015.

FUTURE generations face the serious risk of pensioner poverty due to the likelihood of decreased pension entitlements, a new Organisation for Economic Cooperation and Development (OECD) report — Pension at a Glance 2015 — reveals. 

According to the OECD’s press release dated Dec 1, the report shows that many of today’s retirees in OECD countries worked for most of their lives and often, in rather stable jobs. 

“But this might not be the norm for people starting out today. Unemployment rates among younger people and long term unemployment rate among older workers remain very high in many countries,” it says. 

Meanwhile, the continuity of contributions to pension schemes is reduced because of a decline in jobs with open-ended contracts and a parallel rise in temporary jobs. As a result, more people will receive lower pensions when they retire, says the OECD. 

In the light of this likely scenario, some countries need to reassess their safety nets for pensioners who have not contributed enough for a minimum pension, the report suggests. 

Across the OECD, safety nets for pensioners make up 22% of their average earnings and range from 6% in South Korea to 40% in New Zealand. 

According to the report, about half of OECD countries have taken measures in the past two years to make their pension systems more affordable in the long term. 

“While these [measures] are steps in the right direction, there is now a growing risk in some countries that future pensions will not be sufficient,” says OECD secretary-general Angel Gurría. “The long-term challenge is to design policies today that are flexible enough to adapt to the uncertainties of tomorrow’s world of work.”

Since the early 2000s, retirement ages have continued to increase steadily, especially for women. The average employment rate of those aged 55 to 64 has increased sharply in many countries, from 52% to 57% across the OECD. 

The report also highlights that the mortality tables used by insurers in many countries do not fully take into account projected improvements in life expectancy. This could lead to pension funds and life insurers seeking higher yields and pursuing riskier investment strategies that could ultimately undermine their solvency. This in turn could jeopardise current and future retirement income security for many people, the report warns.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.