Pensions protected in pandemic, but long-term effects may linger

The pandemic has disrupted demographics, economies and societies — but the episode hasn’t altered the basic challenge facing public pension systems, says a new report from the Organization for Economic Cooperation and Development (OECD).

According to the report, the pandemic has taken a heavy toll on older populations but not pension payments throughout the OECD area. The latter have have generally remained “well protected,” and future pension obligations have also been maintained due to exceptional government supports, the organization said.

However, the crisis did create some stress for pension systems due to emergency contribution relief that was granted. And, “despite high mortality rates among older populations, savings on pension spending were overall small,” the report found.

Moreover, the pandemic may have longer-term effects on pensions, the report suggested.

“For future pensioners … the crisis could cast a long shadow on retirement,” the OECD said.

For instance, it was noted that young workers who were “severely affected by the economic and social impacts of the crisis” may see lower benefits in the future, “especially if the pandemic results in longer-term scarring and difficulties in building their careers.”

Additionally, emergency response measures, such as allowing early access to pension savings to offset the economic turmoil created by the crisis, could also have longer-erm effects.

“Unless future higher savings offset these withdrawals, low retirement benefits will be the consequence,” the OECD said.

More importantly, the long-term financial pressures facing public pensions due to aging populations remains a persistent threat, the report said.

“While it is natural that the Covid‑19 pandemic has taken centre‑stage in people’s and policy makers’ minds, the biggest long-term challenge for pensions continues to be providing financially and socially sustainable pensions in the future,” the report said.

The fundamental reality, which remains largely unchanged by the pandemic, is that workers must either make higher pension contributions, stay employed longer or accept reduced benefits.

“Overall, as countries gradually move away from Covid‑19 crisis management response, governments should address the most pressing structural challenges to pension systems as part of their recovery plans,” the report concluded.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.