OECD Social, Employment and Migration Working Papers

This series is designed to make available to a wider readership selected labour market, social policy and migration studies prepared for use within the OECD. Authorship is usually collective, but principal writers are named. The papers are generally available only in their original language - English or French - with a summary in the other.

English, French

Filling the Pension Gap

Coverage and Value of Voluntary Retirement Savings

The current generation of workers can expect lower pension benefits in retirement than the current generation of pensioners. Private, voluntary pension savings will therefore play a greater role in providing for old age. This paper calculates the size of the “pension gap”: the difference between the benefits from mandatory retirement-income provision and a target pension level. It then computes the amount that people would need to save to achieve the target. Data on coverage of private, voluntary pension schemes in a range of OECD countries are then presented. The paper also shows how coverage varies with age and earnings. The results show significant gaps in coverage, particularly among low earners and younger workers. The effect could be a resurgence of old-age poverty when these generations reach retirement. Data on contributions to private pensions show that these are, on average, at a level likely to fill the pension gap. Expanding coverage rather than raising contribution rates should therefore be the policy priority. Five policy options for increasing coverage are assessed: (i) mandating private pensions; (ii) “soft compulsion”, which is automatic enrolment in private pensions but with an opt-out; (iii) facilitating access to the means for saving for retirement; (iv) preferential tax treatment of retirement savings; and (v), improving financial awareness.


JEL: G23: Financial Economics / Financial Institutions and Services / Non-bank Financial Institutions; Financial Instruments; Institutional Investors; H31: Public Economics / Fiscal Policies and Behavior of Economic Agents / Fiscal Policies and Behavior of Economic Agents: Household; D14: Microeconomics / Household Behavior and Family Economics / Household Saving; Personal Finance; J14: Labor and Demographic Economics / Demographic Economics / Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies
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