"The OECD recommends that member countries consider introducing tontine-like arrangements as default options in the payout phase of defined contribution pension plans to ensure lifetime income."
OECD Pensions Outlook 2020:
What is the problem:
Many governments have moved to what is described as a hybrid DC/DB pensions model. In essence, this means that:
- Employees are obliged to contribute to a retirement account to build a personal pension,
- If the employees retirement account fails to grow sufficiently to provide a minimum level of pension, the government will step in and pay the difference,
- As the life expectancy of the employees increases, the liability of the government increases,
- As the governments liabilities increase, the cost of financing government expenditure (bond rates) increases & their credit rating falls.