Report backs compulsory pension schemes


A new pan-European report has claimed that citizens' participation in pension funds should be enforced by their respective governments, as people are unable to maintain hectic work-life balances and the need to provide for their retirement.

The eighth annual Geneva report on the world economy from the Centre for Economic Policy Research (cebr) and the International Conference on Mobile Business (ICMB) believes that the role of pension funds needs to be re-evaluated.

Although today's report concedes that pension funds are becoming the "largest institutional investors" in financial markets worldwide, the marketplace has become "by a number of serious market imperfections".

These fundamental flaws include poor financial education among investors and managers, a lack of collective information on the subject and inconsistencies in national labour and capital markets.

The cebr/ICBM report claims that reforms that involve raising the age of retirement, such as those seen in the UK, face "serious political obstacles".

Its authors instead gives its support to systems that incorporate adjustments including the indexing of pension benefits and the alteration of retirement age in relation to increases in life expectancy.

Individual pension plans typically involve high-costs and suffer from a "substantial" risk of mis-selling, the report claims.

"Households lack the basic financial knowledge and computational ability to implement complex financial knowledge over the life cycle," the authors write.

"Mandatory participation in collective pension plans offering a limited number of default choices can avoid this."

Although they concede that these schemes grant a "limited freedom of choice for individual participants", stand-alone pension funds that replace company-based schemes are preferable as they make employees "less dependent on the firm they work for".

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