Editorial and Executive Summary
Since the early 1990s, pension reform has been high on the agenda in many OECD countries. Governments have either undertaken far-reaching, structural pension reforms or adopted a series of smaller reforms which, taken together, affect future pension entitlements substantially. These reforms, like pension systems themselves, have had many diverse and complex features. They have included, among other things, increases in pension ages, changes in the way that benefits are calculated and smaller real pension increases than in the past. However, despite the different approaches, there is a clear underlying trend towards a reduced pension promise for today’s workers, when compared with past generations. This is necessary to ensure the financial sustainability of pension systems for both current and future retirees.
Comparing Pension Policies of OECD Countries
This part starts with an overview of the different schemes that together make up national retirement-income systems. A summary of the key features of pension systems – the parameters and rules – follows. The main empirical results, consisting of eight indicators that are calculated using the OECD pension models, are then presented. The first two indicators are both replacement rates; that is, the ratio of pension benefits to individual earnings. These are given in gross and net terms, taking account of taxes and contributions paid on earnings and on retirement incomes. There are also two sensitivity analyses of the gross replacement rate: gross pension replacement rates with entry at age 25; and gross pension replacement rates with different rates of return.
Pension Reforms and Private Pensions
This part presents two special chapters on pension reforms and private pensions. Both chapters use the OECD pension models to explore more deeply the central issues of pension policy in national debates. The framework of Pensions at a Glance is forward-looking, focusing on future pension entitlements of today’s workers. However, the past decade has seen intense reform activity in the world of pensions and retirement in many OECD countries. The first special chapter looks at what countries did and how this is likely to affect future benefits. A number of these reforms have increased the role of the private sector in pension provision. The second special chapter identifies the complex range of private retirement arrangements and quantifies the savings effort necessary to maintain standards of living in retirement.
This part provides detailed background information on each of the 30 countries’ retirement-income arrangements. These include FFpension eligibility ages and other qualifying conditions; the rules for calculating benefit entitlements; the treatment of early and late retirees; and more detailed information on the pre-reform scenarios explored in the special chapter on pension reforms in Part II. The country studies summarise the national results in standard charts and tables.
Australia’s pension system has two components: a means-tested age pension plus the superannuation guarantee, a compulsory contribution to a private pension plan. These plans are mainly defined contribution.
The pension system consists of a defined-benefit public scheme with an income-tested top-up for low-income pensioners.
The pension system has two components: an earnings-related public scheme with a minimum pension and a means-tested safety net.
The pension system offers a universal flat-rate benefit, which can be topped up with an income-tested benefit, and earnings-related public schemes.
The public pension scheme has a basic element and an earnings-related part calculated according to a progressive formula. There is also a minimum pension.
The public scheme (folkepension) consists of a basis amount and an income-tested pension supplement. A means-tested supplementary pension benefit is paid to the financially most disadvantaged pensioners. There are also two schemes based on individuals’ contribution records, the ATP (the Danish Labour Market Supplementary Pension) and the SP (the Special Pension savings scheme). In addition, compulsory occupational schemes negotiated as part of collective agreements cover about 90% of full-time employees.
The two-tier pension system consists of a basic national pension, which is incometested, and a range of statutory earnings-related schemes, with very similar rules for different groups. The modelling covers the scheme for private sector employees (TEL). The schemes for private-sector employees are partially pre-funded while the public-sector schemes are pay-as-you-go financed (with buffer funds to even out future increases in pension contributions). Major pension reform was introduced in Finland in 2005. The rules presented here refer to long-term situation when all reforms are fully phased-in.
The pension system has two tiers: an earnings-related public pension and mandatory occupational schemes, based on a points system. The public scheme also has a minimum pension.
The statutory public pension system has a single tier and is an earnings related PAYG system. Calculation of pensions is based on pension points. There is a social-assistance safety net for low-income pensioners.
Pensions are provided through an earnings-related public scheme with two components plus a series of minimum pensions/social safety nets. The pension system described applies to labour-market entrants from 1993.
The new system combines an earnings-related public pension with mandatory, funded, defined-contribution schemes. It applies to new labour-market entrants and people aged 42 or under at the time of reform. Older workers could choose between this mixed system or a pure pay-as-you-go, public pension. The modelling assumes that workers are covered by the mixed system.
The public pension system has three components, including a basic and two income-tested schemes. There are also mandatory occupational pensions with a hybrid (albeit mainly defined-benefit) formula.
The public pension is a basic scheme paying a flat rate to all who meet the contribution conditions. There is also a means-tested pension to provide a safety net for the low-income elderly. Voluntary occupational pension schemes have broad coverage: around half of employees.
The new Italian pension system is based on national accounts. Contributions earn a rate of return related to GDP growth. At retirement, the accumulated notional capital is converted into an annuity taking account of average life expectancy at retirement. It applies in full to labour-market entrants from 1996 onwards.
The public pension system has two tiers: a basic, flat-rate scheme and an earningsrelated plan (employees’ pension scheme).
The Korean public pension scheme was introduced relatively recently. It is an earningsrelated scheme with a progressive formula, since benefits are based on both individual earnings and the economy-wide average of earnings.
The public pension scheme has two components: a flat-rate part depending on years of coverage and an earnings-related part. There is also a minimum pension.
New labour-force entrants are obliged to join the new funded and privately managed, defined-contribution scheme. The government contributes 5.5% of the 1997 real minimum wage to the individual account. There is also a minimum pension.
The Dutch pension system has two main tiers, consisting of a flat-rate public scheme and earnings-related occupational plans. Although there is no statutory obligation for employers to offer a pension scheme to their employees, industrial-relations agreements mean that 91% of employees are covered. These schemes are therefore best thought of as quasi-mandatory.
The public pension is flat rate and based on a residency test. There are occupational schemes but coverage has fallen since 1990 from 22.6% of the employed workforce to 14.1%.
The public pension system in Norway consists of a flat-rate basic pension, a special supplement and an earnings-related (supplementary) pension. Part of the minimum pension is means-tested against the earnings-related pension. Recently, a mandatory occupational pension was introduced.
The new pension system was introduced in 1999; it applies to people born in 1949 or after. The new public scheme is based on a system of notional accounts. People under 30 (born in 1969 and after) at the time of the reform must also participate in the funded scheme; people aged 30-50 (born between 1949 and 1968) could choose the funded option. However, the choice had to be made in 1999 and it was irrevocable.
Portugal has an earnings-related public pension scheme with a minimum pension and a means-tested safety net.
The earnings-related, public scheme is similar to a points system, with benefits that depend on individual earnings relative to the average. There is no minimum pension, but low-income workers are protected by a minimum amount of earnings on which pension is calculated. All pensioners are eligible for social assistance benefits. Defined-contribution plans were introduced at the beginning of 2005.
The Spanish public pension system consists of a single, earnings-related benefit. There is also a means-tested minimum pension, which replaces the previous special social assistance scheme.
The new pension system, introduced in 1999, applies to people born in 1954 and after. The old and the new systems will cover older workers proportionally: people born 1938-1953 will receive pensions under a mix of the old and new rules. The earnings-related part is based on notional accounts and there is a small mandatory contribution to individual, defined-contribution funded pensions. There is also a pension-income-tested top-up. Occupational pension plans – with defined-benefit and defined-contribution elements – have broad coverage.
The Swiss pension system has three main parts. The public scheme is earnings-related, but has a progressive formula. There is also a system of mandatory occupational pensions and an income-tested supplementary benefit.
Turkey has an earnings-related public scheme with an income-tested safety net and a flat-rate supplementary pension.
Britain has a complex pension system, which mixes public and private provision. The public scheme has two tiers, (a flat-rate basic pension and an earnings-related additional pension), which are complemented by a large voluntary private pension sector. Most employee contributors "contract out" of the state second tier into private pensions of different sorts. A new income-related benefit (pension credit) has recently been introduced to target extra public spending on the poorest pensioners.
The publicly provided pension benefit, known as social security, has a progressive benefit formula. There is also a means-tested top-up payment available for low-income pensioners.
Add to Marked List