Gross replacement rates

Gross replacement rates, showing pension benefit as a share of individual lifetime average earnings, vary greatly across Asia, from 37.5% in Thailand to 87.4% in India. These are the extremes for average earners but estimates are also given at 50% and 200% of average earnings. Replacement rates generally decline as earnings increase and are usually higher for men than for women.

Often, the replacement rate is expressed as the ratio of the pension over the final earnings before retirement. However, the indicator used here shows the pension benefit as a share of individual lifetime average earnings (re-valued in line with economy-wide earnings growth). Under the baseline assumptions, workers earn the same percentage of economy-wide average earnings throughout their career. In this case, lifetime average re-valued earnings and individual final earnings are identical.

For workers at average earnings, the average for the OECD countries of the gross replacement rate from mandatory pensions is 52.9% for men and 52.3% for women. There is little variation across Asia/Pacific OECD economies, with Canada at the top of the range, offering replacement rates of 41.0% and Australia at the bottom with only 32.2%. The rates for the non-OECD economies do have a wide range, going from 87% for India to 38% for Thailand, followed by Sri Lanka and Hong Kong, China at just over 40%. Regional variation also exists with both India and Pakistan having a replacement rate approximately double that of Sri Lanka, whilst the majority of the remaining Asia/Pacific economies have replacement rates between 60% and 75%. The non-Asian OECD economies tend to have lower replacement rates with Italy and, to a lesser degree, France being among the exceptions with replacement rates of 83% and 61% respectively.

Low earners – workers earning only half the mean – have higher replacement rates than mean earners: on average, 65% for the OECD. This reflects the fact that most economies attempt to protect low income workers from old-age poverty. The cross-economy variation of replacement rates at this earnings level is much higher than it is for pensions of those who earn twice the average. The highest gross replacement rates for low earners are found in China at 96%, which means that full-career workers with permanently low earnings have approximately the same income, upon retirement, as when they were working. The lowest rate is observed in Thailand, which has a replacement rate of 39% for low earners. Australia has the highest replacement rate amongst Asian OECD economies at 83%, more than twice that of Germany.

For high earners – working earning twice the mean – India again offers the highest pensions, with a replacement rate of 86%, followed by Viet Nam which has a steady replacement rate of 75% across all the earnings levels. The variation across economies in replacement rates for high earners is much smaller than it is for people on low or average pay. Thailand is again at the bottom of the rankings for the non-OECD economies, at 19%, though it is higher than the United Kingdom. Again the majority of the non-OECD economies have higher replacement rates than their OECD counterparts, with the exception of Italy. Seven of the eleven non-OECD economies have a higher replacement rate than the OECD average of 44.5%, compared to only two of the ten OECD countries listed. The replacement rates in Australia and Canada are under half the level for low earners. For Korea the replacement rates are at about one-third of the level for low earners, while for New Zealand and the United Kingdom they are only at one-quarter of the level.

For women the replacement rates are at best equal, but are generally below, those for men, without exception. Whilst most OECD countries have the same replacement rates for men and women it is noticeable that all the non-OECD economies, apart from the Philippines, Thailand and Viet Nam, have lower replacement rates for women than for men.

Table 2.1. Gross pension replacement rates by earnings, men and women

Men

Women

Men

Women

Individual earnings (% average)

50

100

200

50

100

200

Individual earnings (% average)

50

100

200

50

100

200

East Asia/Pacific

OECD Asia/Pacific

China

96.0

76.0

66.0

82.6

65.1

56.3

Australia

82.8

32.2

32.1

80.0

29.4

29.3

Hong Kong, China

53.8

42.2

37.0

51.1

38.2

32.3

Canada

54.1

41.0

21.4

54.1

41.0

21.4

Indonesia

62.1

62.1

61.0

57.8

57.8

56.7

Japan

47.8

34.6

26.2

47.8

34.6

26.2

Malaysia

70.3

69.4

68.4

64.9

64.1

63.1

Korea

58.5

39.3

21.5

58.5

39.3

21.5

Philippines

73.8

71.9

70.1

73.8

71.9

70.1

New Zealand

80.0

40.0

20.0

80.0

40.0

20.0

Singapore

53.1

53.1

31.5

47.3

47.3

28.0

United States

48.3

38.3

27.1

48.3

38.3

27.1

Thailand

38.8

37.5

18.8

38.8

37.5

18.8

Viet Nam

75.0

75.0

75.0

75.0

75.0

75.0

Other OECD

France

60.5

60.5

51.8

60.5

60.5

51.8

South Asia

Germany

38.2

38.2

29.7

38.2

38.2

29.7

India

87.4

87.4

85.9

83.1

83.1

81.5

Italy

83.1

83.1

83.1

83.1

83.1

83.1

Pakistan

80.0

80.0

44.9

78.6

70.0

39.3

United Kingdom

44.3

22.1

11.1

44.3

22.1

11.1

Sri Lanka

40.6

40.6

40.6

33.9

33.9

33.9

OECD

64.9

52.9

44.5

64.4

52.3

44.1

Source: OECD pension models.

 StatLink http://dx.doi.org/10.1787/888933873231

Figure 2.1. Gross pension replacement rates by earnings, low and average earners
picture

Source: OECD pension models

 StatLink http://dx.doi.org/10.1787/888933873250

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