4.36 Chile is the exception here in having a very rich database of life annuities. However, information on the performance of phased withdrawals is very limited, while available data do not allow the calculation of replacement rates at retirement.<sup>35</sup> 4.37 In addition to compiling a comprehensive database, the authorities in different countries would also need to undertake programs to expand financial literacy. Such programs should target both active and retired workers and should cover financial issues arising during both the accumulation and payout phases of pension systems.

4.38 Finally, as emphasized above, countries that decide to offer a constrained choice of retirement products to retiring workers need to specify the product that will act as the default option. This will enable retiring workers that lack the necessary knowledge and sophistication for assessing the different features of pretty complex financial products to opt for a solution that enjoys government support and will protect them from the potentially abusive practices of brokers and selling agents. The considerable complexity of most retirement products implies a strong need for guidance and impartial advice. The default option will vary by country depending on local conditions and social preferences.

4.39 Specification of the default option will entail two main aspects. First, the type of retirement product that will be used as default. This will vary among countries, in some cases will be a fixed real annuity, in other a 'guarantee and bonus' variable annuity, and in others a phased withdrawal. The second aspect concerns the identity of the provider. If a centralized provider is created, this would most likely be specified in the default option. In a decentralized competitive market the default option will probably be based on a competitive auction that will allocate new undecided retirees to the institution that levies the lowest operating costs or offers the highest payout benefits.

# **4.3 The Regulation of Providers of Retirement Products**

4.40 The regulation of providers of retirement products covers several issues. First and foremost is the overall institutional organization of the market and the basic choice between a centralized single provider and a decentralized competitive structure. Other issues cover the regulation of marketing and pricing policies and the prudential regulation of providers in conjunction with the types of risk assumed by them.

4.41 This paper does not address the readiness and sophistication of local financial and insurance markets to support the efficient offer of retirement products. Most developing and transitioning historically suffered from underdeveloped financial and insurance markets. However, over the past two decades, many countries in Asia, Eastern Europe and Latin America have opened their markets to large multinational entities, which have in many cases acquired dominant positions in individual countries. Although the 2008 global financial crisis offers a sharp reminder that even large and sophisticated financial groups suffer from lack of integrity and transparency and engage in abusive and

> 35 Blake et al (2008) argue that policymakers should allow flexible retirement products that take into account risk aversion and bequest motives, especially in countries with large first pillars, while also emphasizing the need for better information to workers regarding the various tradeoffs.

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