Eligibility and indexation for first-tier benefits
On average 34 years of contributions are needed for a full contribution-based basic pension, with 13 years contributions to be entitled to any benefit. The United Kingdom currently requires the shortest contribution period to be eligible for a benefit at one year, while the Czech Republic requires 35 years for eligibility, which is also the same level for the full benefit. Minimum pensions on average require 29 years for a full benefit. Partial benefits are available in France and Switzerland when any payment has been made to the pension system, with at least 15 years required in other OECD countries.
Contribution-based basic pensions
The full rates of first-tier pensions are described in the previous indicator, but these levels are only applicable after full eligibility. In most countries with such systems, partial eligibility is achieved after much shorter careers. For example, whilst full entitlement to the contribution-based basic pension is achieved after 40 years in Canada, Japan and Luxembourg, only 10 years of contribution are required for eligibility for a reduced benefit (Figure 3.4). On average across the OECD countries that have contribution-based basic pensions 34 years are required for a full pension and 13 years for initial eligibility. In both Lithuania and the United Kingdom the eligibility criteria are changing, with Lithuania increasing the period for the full benefit and the United Kingdom increasing the criteria for both eligibility and full benefit. In the Czech Republic 35 years are required for eligibility, with Argentina at 30 years and no other OECD or G20 country requiring more than 15 years. Residence-based basic pensions also have proportionally reduced benefits in many countries but the default assumption for the analysis in this report is full residence irrespective of career breaks.
Minimum pensions
Likewise for minimum pensions there are different eligibility rules across countries. Minimum pensions are much more widespread than contribution-based basic pensions and more commonly have only one monetary value irrespective of the eligible contribution period, with fewer than half of countries applying higher rates for longer careers of contribution. On average 19 years of contribution are required for eligibility to a minimum pension, with 29 years required on average for a full minimum pension. In France and Switzerland, only one period of contribution is required for a minimum pension, whilst over 40 years are required for the full benefit. In the Slovak Republic, the minimum pension is achieved after 30 years, with no explicit maximum duration. Full minimum pensions are eligible with 25 years of contributions or less in Chile, Colombia, Costa Rica, Hungary, Italy, Mexico, Poland, Slovenia, Spain and Turkey.
Indexation
Once eligible for a basic, minimum or targeted pension, how it is indexed in payment is the key factor apart from discretionary adjustments to how these benefits may support future generations of retirees, and be effective to fight against old-age poverty. If benefits are indexed to wages, as is the case for the basic and safety-net benefits in Denmark, for example, then they will hold their value relative to average wages throughout the retirement period, decreasing future poverty risks and maintaining the relative standard of living of the retiree. However, indexing first-tier benefits to wage growth is rare across OECD countries (Table 3.3). Price indexation is a much more common approach, which means that during normal times of positive real-wage growth, fuelled by productivity gains, the relative value of the benefit tends to decline over time. In that case, future eligibility thresholds for targeted benefits are also decreasing relative to wages. This is likely to reduce the number of individuals or households that will be eligible in the next decades.
Note: Lithuania (1) and the United Kingdom (1) refer to the rules that apply for those retiring in 2020, whilst Lithuania (2) and the United Kingdom (2) are for those first entering the labour market in 2020.
Source: See “Country Profiles” available at http://oe.cd/pag.
Note: In the Slovak Republic, the full benefit of 42 years recorded in the chart, reflects the full career case from age 22, as there is no explicit maximum duration.
Source: See “Country Profiles” available at http://oe.cd/pag.