OECD Adopts Legal Instrument Support of Nonguaranteed Longevity Risk Sharing

Updated: Mar 4

On February 23, 2022, the Organisation for Economic Co-operation and Development (OECD) adopted Legal Instrument 0467 that updates its Roadmap for the Good Design of DC Pension Plans. Moreover, it elevated the Roadmap to the status of an official OECD Recommendation to increase its status, visibility, and global reach.

The document discusses ten policy principles to strengthen retirement income adequacy within DC pension plans, saying that it “aims to improve the robustness of retirement systems and increase beneficiaries’ trust that pension provides have their best interest in mind.” Included in these principles, the new legal instrument states that OECD Adherents should:

Ensure protection against longevity risk in retirement. DC pension plans should provide some level of lifetime income as a default for the pay-out phase, unless other pension arrangements already provide for sufficient lifetime pension payments. Lifetime income can be provided by annuities with guaranteed payments or by non-guaranteed arrangements where longevity risk is pooled among participants. The choice of the type of arrangement will depend on the desired balance between the cost of guarantees and the stability of retirement income. Flexibility could be provided by allowing for partial, deferred or delayed lifetime income combined with programmed withdrawals. Full lump-sums should be discouraged in general, except for low account balances or extreme circumstances.” (underscoring added)

As pioneers of modern, actuarially fair, DC longevity risk pooling research, methodologies, and technology, Nuovalo is excited that the OECD has recognized the important benefits of longevity risk pooling to retirement income adequacy and security. We make it easy for DC pension plans, asset managers, robo advisors, and others to integrate lifetime income solutions directly into their existing ecosystems at low cost, without the overhead and complexity of insurance guarantees.

Interested in learning more about modern fair longevity risk pooling? See the Nuovalo Research Library or the Section 6 of the OECD Pensions Outlook 2020. Or contact us here.