benefit security pension fund guarantee schemes - oecd.org.pdf

BENEFIT SECURITY PENSION FUND GUARANTEE SCHEMES by Fiona Stewart, OECD I. Introduction 1. The issue of pension benefit security is currently in the foreground of both economic and political debate in many OECD countries. After a ‘golden age’ for pension funds, which enjoyed high investment returns and funding surpluses throughout the 1990s, a more troubled period has emerged since the start of the millennium. With equity market corrections, (and the subsequent questioning of long-term equity return assumptions), a low interest rate environment, asset liability mismatches, severe underfunding (highlighted by accounting changes), aging populations, financial scandals and loss of pension benefits, the whole defined benefit pension system in many countries is under assault. Once the rise in defined contribution schemes (and the uncertainty they inherently entail) as well as the scaling back of government pensions are also taken into consideration, people of all ages are rightly asking what retirement income they can rely on? Though the subject has been debated on many occasions, recent events have ensured that the topic of pension benefit security has once again become a focus for policy discussion. 2. Some countries have dealt with benefit protection via strong funding rules (the route taken for example by the Dutch authorities). This paper examines an alternative method of increasing benefit security in retirement – pension benefit guarantee schemes (the option current being introduced in the UK). The ultimate risk that beneficiaries of defined benefit occupational pension schemes face, (or defined contribution schemes where the pension fund itself is responsible for any return, benefit promise or g