In a report on pensions, the organisation – which represents 35 countries across the developed world – attacked former chancellor George Osborne’s reforms for giving people unlimited access to their retirement savings, warning they could lead to people outliving their savings.
“Our fear is that what is going on in the UK [since the reforms] is that there will be people who are not covered against longevity risk,” OECD pensions economist Pablo Antolin told The Financial Times.
By giving people unfettered access to their pensions, Osborne effectively removed the need to buy an annuity.
Anatolin is now calling on the UK government to do more to improve access to financial advice or products which can ‘part-annuitise’ savings.
“To alleviate the pressure on individuals, the OECD advocates the use of financial advice and part annuitisation.”
“We don’t know how it will settle. But our roadmap for the good design of pensions recommends that at least a partial amount of retirement savings should be used to buy a deferred annuity – and that should be a default because people might not choose [to do so],” said Antolin.
The OECD report, published on Monday, said the ‘increased complexity’ of annuity products meant that financial advice was important for consumers and called for ‘simpler’ tax rules to improve pension contributions.
Since the pension freedoms, sales of annuity products have plummeted, with ABI data showing a 71% drop from £3.3bn (€3.8bn, $4.1bn) invested in annuities in the last quarter of 2015, to £950m by mid-2016.
Meanwhile, the OECD said that annuity demand fell 61% in the second quarter of 2015, compared to the second quarter of the previous year as a result of the reforms.