COVID and Pension Planning World Wide 1

In an interesting article in the Asia Pacific Forum, Odusote Fatimah Abolanle and Alfred Muluan Wu write.

With the COVID-19 pandemic grinding almost every sector of the global economy to a standstill, many governments have had to reform policy to buffer the health and economic shocks their citizens are going through, including pensions and social security.

This unprecedented paradigm shift has exposed existing gaps in pension policies. Although some principles related to pensions, namely adequacy and sustainability, have been widely acknowledged, difficulties have been lingering around the direction of pension reforms amidst this unprecedented challenge.

Governments across the region should be careful about making changes to pension systems in the wake of the pandemic’s heights.

 In general, pension schemes are intended to provide consumption smoothing, insurance, and poverty relief for the elderly. In essence, they serve as income security for older people, and prevent poverty and reduce inequality in later life. Pension systems go beyond offering protection to senior citizens but also serve to reduce the financial burden on the governments, in particular in health and aged care.

Intriguingly, global pension systems have undergone significant transformation and adaptation and most pensions have evolved.

The most recent wave of pension reform started from Latin America and Eastern Europe, and gradually diffused to other parts of the world. The wave saw a shift from defined benefit, pay-as-you-go (PAYG), publicly administered pensions to a privately managed, defined contribution systems.

However, this is just one solution. While the World Bank and the International Labour Organization have proposed their own models, the kind of pension system applicable in different nations should ideally depend on social and cultural factors, and the unique composition of a country’s citizenry and workforce.

Hence, pension systems ought to vary from country to country, and be uniquely tailored to achieving the intended objectives of a government while also abiding by the overall principles of adequacy, sustainability, and integrity.