OECD Pensions at a Glance

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Biennial
ISSN: 
1999-1363 (online)
ISSN: 
1995-4026 (print)
http://dx.doi.org/10.1787/19991363
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OECD’s biennial report on the pension systems across OECD and G20 countries. Each edition opens with an overview comparing pension policies of OECD countries and recent reforms. This is followed by at least one thematic chapter and a range of indicators including pension projections for today’s workers.

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Pensions at a Glance 2017

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Pensions at a Glance 2017

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Author(s):
OECD
05 Dec 2017
Pages:
164
ISBN:
9789264287518 (EPUB) ; 9789264287501 (PDF) ;9789264287495(print)
http://dx.doi.org/10.1787/pension_glance-2017-en

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The 2017 edition of Pensions at a Glance highlights the pension reforms undertaken by OECD countries over the last two years. Moreover, one special chapter focuses on flexible retirement options in OECD countries and discusses people’s preferences regarding flexible retirement, the actual use of these programs and the impact on benefit levels.

This edition also updates information on the key features of pension provision in OECD countries and provides projections of retirement income for today’s workers. It offers indicators covering the design of pension systems, pension entitlements, the demographic and economic context in which pension systems operate, incomes and poverty of older people, the finances of retirement-income systems and private pensions.

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Expand / Collapse Hide / Show all Abstracts Table of Contents

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  • Foreword

    This seventh edition of Pensions at a Glance provides a range of indicators for comparing pension policies and their outcomes between OECD countries. The indicators are also, where possible, provided for the other major economies that are members of the G20. Two special chapters () provide a deeper analysis of recent pension reforms and flexible retirement opportunities within OECD countries.

  • Editorial Flexibility or the comeback of early retirement?

    Few reforms are as contested as raising the retirement age. It is a key marker of when a society finds it normal to stop working and acceptable to draw a pension; it also signals when workers can expect to retire; and it is a threshold for many employers that indicates when their workers are expected to leave their company.

  • Executive summary

    This edition of Pensions at a Glance reviews and analyses the pension measures enacted or legislated in OECD countries between September 2015 and September 2017 and provides an in-depth review of flexible retirement policies. As in past editions, a comprehensive selection of pension policy indicators is included for all OECD and G20 countries.

  • Recent pension reforms

    This chapter looks at pension reforms in OECD countries over the past two years (between September 2015 and September 2017). Most OECD countries have enacted pension reforms since the last publication of Pension at a Glance. However, the reforms have been fewer and less widespread than in previous years with one-fifth of OECD countries taking no policy action. Among the most common reforms are changes in benefits and contributions. In addition, retirement ages are being adjusted in the majority of OECD countries. However, some of these adjustments are a reversal of previously legislated retirement age increases.

  • Flexible retirement in OECD countries

    This chapter looks at flexible retirement in OECD countries. First, it looks at how people work and retire in OECD countries. Second, it looks at the existing flexible retirement options in OECD countries. It looks at combining work and pensions before and after the retirement age and the flexibility to choose when to retire. Third, it looks at people’s preferences regarding flexible retirement and the actual use of these programmes. Finally, it draws conclusions.

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  • Expand / Collapse Hide / Show all Abstracts Design of pension systems

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    • Architecture of national pension systems

      Retirement-income regimes are diverse and often involve a number of different programmes. Classifying pension systems and different retirement-income schemes is consequently difficult. The taxonomy of pensions used here consists of two mandatory “tiers”: an adequacy part and an earnings-related part. Voluntary provision, be it individual or employer-provided, makes up a third tier.

    • Basic, targeted and minimum pensions

      Basic and minimum pensions along with social assistance are defined as the first layer of protection for the elderly within the pension system. They make up the first tier of the OECD’s taxonomy of pension systems, which was set out in the previous indicator of the architecture of national pension schemes.

    • Mandatory earnings-related pensions

      The second-tier of the OECD’s taxonomy of retirement-income provision comprises mandatory earnings-related pensions. Key parameters and rules of these schemes determine the value of entitlements, including the long-term effect of pension reforms that have already been legislated.

    • Current retirement ages

      The rules for eligibility to retire and withdraw a pension benefit are complex and often reflect conflicting objectives. This is all mirrored in the different criteria for pension benefit withdrawal in different schemes. In 2016 the OECD average normal pension age was equal to 64.3 years for men and 63.7 years for women across all schemes for an individual retiring in 2016 and assuming labour market entry at age 20.

    • Future retirement ages

      Future normal and early retirement ages have been increasing. Following the changes presented herein and assuming labour market entry at age 20 in 2016 the normal retirement age will increase to 65.8 for men and 65.5 for women on average across all OECD countries against 64.3 and 63.4 years, respectively, in 2016.

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  • Expand / Collapse Hide / Show all Abstracts Pension entitlements

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    • Methodology and assumptions

      The indicators of pension entitlements that follow here in Chapter 4 use the OECD cohort based pension models. The methodology and assumptions are common to the analysis of all countries, allowing the design of pension systems to be compared directly. This enables the comparison of future entitlements under today’s parameters and rules.

    • Gross pension replacement rates

      The future gross replacement rate shows the level of pension benefits in retirement from mandatory public and private pension schemes relative to earnings when working. For full-career workers with average earnings, the future gross replacement rate averages 53% for men and 52% for women in the 35 OECD countries, with substantial cross-country variation. At the bottom of the range, the United Kingdom offer future replacement rates of 22% at the average wage to people starting work at age 20 today. The Netherlands, at the top of the range, offers replacement rates of slightly less than 97%.

    • Gross replacement rates: public vs private, mandatory vs voluntary schemes

      Private pensions play large role in about half of OECD countries. For mandatory schemes, the OECD average for gross replacement rates of an average earner from public schemes alone is 41%, compared with 53% with private pensions included. When voluntary private pensions are taken into account, the OECD average increases to 59%. For the eight OECD countries where voluntary private pensions are widespread the average replacement rate is 63% for an average earner choosing to contribute compared with 37% when only mandatory schemes are considered.

    • Tax treatment of pensions and pensioners

      The personal tax system plays an important role in old-age support. Pensioners often do not pay social security contributions. Personal income taxes are progressive and pension entitlements are usually lower than earnings before retirement, so the average tax rate on pension income is typically less than the tax rate on earned income. In addition, most income tax systems give preferential treatment either to pension incomes or to pensioners, through additional allowances or credits to older people.

    • Net pension replacement rates

      Whilst the gross replacement rate gives a clear indication of the design of the pension system, the net replacement will matter more to the individual, as it reflects their disposable income in retirement in comparison to when working. For average earners, the net replacement rate from mandatory pension schemes averages 63% across the OECD, which is 10 percentage points higher than the average gross replacement rate. This reflects the higher effective tax and social contribution rates that people pay on their earnings than on their pensions in retirement, mostly due to the progressivity of tax systems, some tax advantages to pensions and the absence of pension contributions on pension benefits. Net replacement rates vary across a large range, from less than 30% in Mexico and the United Kingdom to over 100% in the Netherlands and Turkey for average-wage workers. For low earners (with half of average worker earnings), the average net replacement rate across OECD countries is 73% while it is 59% for high earners (150% of average worker earnings).

    • Net pension replacement rates: mandatory and voluntary schemes

      The OECD average for net replacement rates of an average earner from public and mandatory private schemes is 63%. When voluntary private pensions, are added, the average net replacement rate is 69%. When voluntary private pensions are taken into account, for the eight OECD countries where voluntary private pensions are widespread the average net replacement rate for these eight countries is 74% compared with 62% in gross terms.

    • Gross pension wealth

      Pension wealth relative to individual earnings measures the total discounted value of the lifetime flow of all retirement incomes in mandatory pension schemes at retirement age. For average earners, pension wealth for men is 9.9 times and for women 10.9 times annual individual earnings on average in OECD countries. Gross pension wealth relative to annual individual earnings is higher for women because of their longer life expectancy. The main determinants of differences across countries are differences in the gross replacement rate, in the length of the retirement period measured by remaining life expectancy at the normal retirement age, and in indexation rules.

    • Net pension wealth

      As with gross pension wealth, net pension wealth relative to individual net earnings measures the total discounted value of the lifetime flow of all retirement incomes in mandatory pension schemes at retirement age. For average earners, net pension wealth for men is 11.8 times and for women 13.1 times annual individual net earnings on average in OECD countries. Net pension wealth relative to annual individual earnings is higher for women because of their longer life expectancy. The main determinants of differences across countries are differences in the net replacement rate, in the length of the retirement period measured by remaining life expectancy at the normal retirement age, and in indexation rules.

    • Gross pension replacement rates for different earnings profiles

      The future gross replacement rate shown in indicator 4.2 for the average-wage worker assumes that this worker earns the average wage all along her or his career from age 20 (baseline case). The indicator here assumes a wage-age profile, with the relative wage increases until age 50. It computes the replacement rate assuming that over the whole career the average wage is the same as someone earning the average wage all along. Such a varying relative wage with age has little impact on replacement rates relative to the baseline case, with the average gross replacement rate remaining at 53%.

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  • Expand / Collapse Hide / Show all Abstracts Demographic and economic context

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    • Fertility

      The total fertility rate is below the estimated replacement level of about 2.1 in developed countries – the number of children needed to keep the total population constant – in 33 out of 35 OECD countries in 2015. The exceptions to this are Israel with a total fertility rate of 2.93 and Mexico at 2.14. In over two-thirds of OECD countries fertility rates have slightly increased since the early 2000s. Fertility rates have a profound implication for pension systems because they, along with life expectancy, are the drivers of population ageing. Since 1960, there has been a steady convergence of fertility rates across countries, which is expected to be prolonged in the next decades.

    • Life expectancy

      The remarkable increase in life expectancy is one of the greatest achievements of the last century. Lives continue to get longer, and this trend is predicted to continue. In 2015-20, life expectancy at birth averaged 78.3 years for men and 83.4 years for women. Among women, the figure was highest in Japan (87.2 years) and lowest in Turkey (79.3 years). For men, life expectancy at birth was highest in Iceland (81.6 years) and lowest in Latvia (69.7 years). On average across OECD countries, remaining life expectancy at age 65 is projected to increase by 4.2 years among women and 4.6 years among men during the next 45 years.

    • Old-age dependency ratio

      The so-called demographic old-age dependency ratio – computed by keeping age thresholds constant – will more than double by 2075. Population ageing has been one of the main driving forces behind the wave of pension reforms in recent years. In 2015, there were 28 individuals aged 65 and over for every 100 persons of working age (ages 20 to 64) on average across all OECD countries. The old-age dependency ratio was equal to 14 in 2050, and it is expected to double again in less than 50 years, reaching 58 in 2075.

    • Employment rates of older workers

      The employment rate falls with age in all OECD countries. For individuals aged 55 to 59 years, the average employment rate across all OECD countries was 69.6% in 2016, 46.3% for the 60 to 64 age group and 20.9% for those aged 65 to 69. In twelve OECD countries the employment rates were above the OECD average for all age groups aged 55 and over; by contrast it was below average for all age groups in ten OECD countries. Employment rates of people aged 55 to 64 have improved since the start of the century in most OECD countries, from 44.0% in 2000 to 58.4% in 2016.

    • Effective age of labour market exit

      The average effective age of labour market exit was 65.1 for men and 63.6 for women across OECD countries in 2016. It is ten months higher than the average normal retirement age for men two months higher for women. The lowest effective exit age is found in France for men and in the Slovak Republic for women at 60.0 and 59.5 years, respectively. At the other range of the scale, Korea displayed the highest figures, at 72.0 years for men and 72.2 years for women.

    • Expected years after labour market exit

      The expected years after labour market exit indicator measures the length of expected remaining life expectancy from the time of average labour market exit by gender. In 2016 the OECD average number of expected years in retirement was 18.1 years for men and 22.5 years for women. France had the highest expected duration, equal to 23.6 years for men 27.6 years for women. Korea had the lowest expected years after labour market exit, at 13.0 years for men and 16.2 years for women. The average duration of expected years in retirement across OECD countries has increased over time. In 1970 men in the OECD countries spent on average 11 years in retirement, and women 15 based on this indicator. By 2016 this had increased to 18 and 22 years, respectively.

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  • Expand / Collapse Hide / Show all Abstracts Incomes and poverty of older people

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    • Incomes of older people

      Incomes of older people are on average lower than those of the population, even when differences in household size are taken into account. The over-65s had incomes of 88% of the total population’s in 2014. The incomes of the people aged between 66 and 75 equalled 93% of the total population’s while the over-75s had income equal to 80% of the total population’s. In most OECD countries, public transfers provide the bulk of income in old age.

    • Old-age income poverty

      On average in the OECD, 12.5% of individuals aged over 65 live in relative income poverty, defined as an income below half the national median equivalised household income. There is large variation between countries. Poverty rates are higher for older people than for the population as a whole, which averages 11.5%. However, this result is driven by a handful of countries. In 20 out of 35 OECD countries, old-age income poverty is lower than for the population as a whole.

    • Average wage

      “Average wage (AW)” is an important metric as all pension modelling results are presented as multiples of this measure. The average for all OECD countries was USD 36 622 in 2016.

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  • Expand / Collapse Hide / Show all Abstracts Finances of retirement-income systems

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    • Mandatory pension contributions

      Mandatory pension contribution rates for an average earner averaged 18.4% in 2016 for the 22 OECD countries that have specific contributions for pensions only. For another 12 countries social insurance contributions and mandatory private pension contribution rates averaged 22.9% for employee and employer contributions combined.

    • Public expenditure on pensions

      Public spending on cash old-age pensions and survivors’ benefits in the OECD increased from an average of 6.7% of gross domestic product (GDP) to 8.2% between 2000 and 2013. Public pensions are often the largest single item of social expenditure, accounting for 18% of total government spending on average in 2013.

    • Pension-benefit expenditures: public and private

      Payments from private pension schemes were worth 1.5% of gross domestic product (GDP) on average in 2013 in the 24 OECD countries for which data are available. This is equivalent to one-fifth of average public spending on retirement benefits. Private-pension payments increased from 1.0% of GDP in 1990, but have been broadly stable since 2000.

    • Long-term projections of public pension expenditure

      Public spending on pensions has been on the rise in most OECD countries for the past decades, as shown by the previous two indicators. Long-term projections show that pension spending is expected to go on growing in 21 OECD countries and fall in 14. On average pension expenditure is forecast to increase from around 8.9% of gross domestic product (GDP) in 2013-15 to 9.5% of GDP in 2050.

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  • Expand / Collapse Hide / Show all Abstracts Private pensions and public pension reserve funds

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    • Coverage of private pension plans

      In 2016, private pensions in 17 OECD countries achieved near-universal coverage through mandatory or quasi-mandatory (that is, covering employees in many sectors through collective bargaining agreements) plans. In ten OECD countries, voluntary private pensions (occupational and personal) covered more than 40% of the working-age population.

    • Structure of private pension systems

      The pension landscape includes various types of plan worldwide. Occupational and personal plans coexist in most OECD countries. In 2016, the size of occupational plans in terms of assets varied greatly across countries. In most cases, pension funds would administer these plans although there are some notable exceptions (e.g. Denmark, France). Personal plans and occupational defined contribution plans are gaining importance at the expense of occupational defined benefit plans.

    • Assets in private pension plans and public pension reserve funds

      Substantial assets have been accumulated in most OECD countries to help meet future pension liabilities. The weighted average of OECD assets in private pension plans was equal to 83% of gross domestic product (GDP) in 2016 (using GDP as weights). Eighteen OECD countries have also built up public pension reserves to help pay for state pensions. For these countries, public pension reserves were worth 19% of GDP on average in 2015.

    • Allocation of private pension assets and of assets in public pension reserve funds

      Pension providers and public pension reserve funds still invested mostly in traditional asset classes (primarily bonds and equities) at the end of 2016 and 2015 respectively. Proportions of equities and bonds varied considerably across countries but there is, generally, a greater preference for bonds.

    • Investment performance of private pensions plans and public pension reserve funds

      Despite volatility created by international developments in financial markets, private pensions experienced positive rates of return in most OECD countries in 2016. During 2016, pension providers recorded positive real investment rates of return, with an OECD weighted average at 2.4%. All public pension reserve funds experienced positive returns in 2015.

    • Operating costs of private pension systems and fees charged to members

      The efficiency of private pension systems, as measured by the total operating costs in relation to assets managed, varied considerably across countries in 2016, ranging from 0.1% of assets under management annually to 1.5%. Fees charged to plan members to cover these costs also varied considerably in structure and level across countries.

    • DB funding ratios

      Despite the prolonged low interest rate environment, average funding ratios of defined benefit pension plans have remained relatively steady over the last years. These ratios were however still below 100% at the end of 2016 in Canada, Iceland, Mexico, the United Kingdom and the United States, suggesting that the value of assets in DB plans would not enable to cover pension liabilities. Funding levels are calculated using national (regulatory) valuation methodologies and hence cannot be compared across countries.

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