Whitehouse, Edward and Queisser, Monika (2007): Pensions at a glance: public policies across OECD countries. Published in: (May 2007)
Download (1MB) | Preview
This second edition of Pensions at a Glance updates all the important indicators of retirement-income systems developed for the first edition. The values of all pension system parameters reflect the situation in the year 2004. The general approach adopted is a “microeconomic” one, looking at prospective individual entitlements under all 30 of OECD member countries’ pension regimes.
The report starts by showing the different schemes that together make up national retirement income provision, including a summary of the parameters and rules of pension systems. This is followed by eight main indicators of pension income that are calculated using the OECD pension models. This issue also contains two special analyses on pension reforms and private pensions, which use the OECD pension models to explore more deeply the central issues of pension policy in national debates. Finally, the report provides detailed background information on each of the 30 countries’ retirement-income arrangements.
For workers at average earnings, the average for the OECD countries of the gross replacement rate, i.e. the ratio between pension benefit and pre-retirement earnings, from mandatory pensions is 58.7%. But taxes play an important role in old-age support. Pensioners often do not pay social security contributions and, as personal income taxes are progressive and pension entitlements are usually lower than earnings before retirement, they usually pay less taxes. For average earners, the net replacement rate across OECD countries is nearly 70% on average, some 11 percentage points higher than the average gross replacement rate. For low earners, the average net replacement rate across OECD countries is 83%. But there are regional differences: the Nordic countries offer a 95% net replacement rate to workers on half average earnings while the Anglophone OECD countries pay 76% of previous net earnings.
What matters for governments, however, is not only the replacement rate but the value of the overall pension promise. This is measured by the indicator of pension wealth which takes life expectancy and the indexation of pensions in payment into account. Using this indicator, the pension promise is most expensive in Luxembourg. On average, each male pensioner will receive the equivalent of USD 920 000 and each female retiree over USD 1 million. The Netherlands and Greece rank second and third on this measure. The most modest pension systems are those of Belgium, Ireland, Japan, the United Kingdom and the United States where pension wealth is around two-thirds of the average for OECD countries. The lowest ranking is occupied by Mexico where men and women are promised a pension equivalent to USD 34 000 and 32 000, respectively.
Nearly all the 30 OECD countries have made at least some changes to their pension systems since 1990. As a result, the average pension promise in the 16 countries - whose reforms are studied in this report - was cut by 22%. For women, the reduction was 25%. Only in two of the 16 countries – Hungary and the United Kingdom – were there increased pension promises on average.
How will these changes affect different individuals? Some countries – such as France, Portugal and the United Kingdom – are moving towards greater targeting of public pensions on low earners thus bolstering the safety-net. Others – such as Poland and the Slovak Republic – have moved to tighten the link between pension entitlements and earnings, which may put low-earners at a higher risk of poverty. In Germany, Japan, Mexico, Poland and the Slovak Republic, for example, the net pension entitlement for a full-career worker with half average earnings was around 41% of average earnings before reform, slightly below the average for the OECD as a whole. The reforms will cut this to just 32.5%. In contrast, Finland, France, Hungary, Korea, New Zealand and the United Kingdom have protected low-income workers from cuts in benefit in their pension reforms.
The intense reform activity in OECD countries means that today’s workers will have to do more on their own to prepare for tomorrow’s retirement. In some countries, the savings effort necessary to reach the OECD average replacement rate is substantial, even if workers save throughout their entire career. If young workers miss out on the first 10 or 15 years of their career because of other demands on their budget, reaching a sufficient pension level will become even more difficult. This report illustrates how important it is that workers start saving early and contribute regularly.
|Item Type:||MPRA Paper|
|Original Title:||Pensions at a glance: public policies across OECD countries|
|Keywords:||pensions; retirement; pension reform|
|Subjects:||H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions
J - Labor and Demographic Economics > J1 - Demographic Economics > J14 - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
|Depositing User:||Edward Whitehouse|
|Date Deposited:||20. Jul 2009 05:21|
|Last Modified:||14. Apr 2014 14:13|
Blanchard, O.J. (1993), “The Vanishing Equity Premium”, in R. O’Brien (ed.), Finance and the International Economy, Vol. 7, Oxford University Press.
Bodie, Z. (1995), “On the Risk of Stocks in the Long Run”, Financial Analysts’ Journal, May-June, pp. 18 22.
Brown, R.L. and J. McDaid (2002), “Factors Affecting Retirement Mortality”, North American Actuarial Journal, Vol. 7, No. 2, pp. 24-43.
Constantinides, G., J. Donaldson and R. Mehra (1998), “‘Junior Can’t Borrow: a new perspective on the equity premium puzzle”, Working Paper No. 6617, National Bureau of Economic Research, Cambridge.
Copeland, C. (2006), “Retirement Plan Participation and Retirees’ Perception of their Standard of Living”, Issue Brief No. 289, Employee Benefits Research Institute, Washington DC.
Dang, T.T., P. Antolín and H. Oxley (2001), “Fiscal Implications of Ageing: Projections of Age-related Spending”, Working Paper No. 305, Economics Department, OECD, Paris.
Department of Labor, Employee Benefits Security Administration (various years), Private Pension Plan Bulletin: Abstract of Form 5500 Annual Reports, Washington, DC.
Department of Work and Pensions (2006a), Second Tier Pension Provision 1978/79 to 2003/04, London.
Department of Work and Pensions (2006b), The Abstract of Statistics for Benefits, National Insurance Contributions and Indices of Prices and Earnings: 2005 edition, London.
Disney, R.F. and E.R. Whitehouse (1992), The Personal Pension Stampede, Report No. 42, Institute for Fiscal Studies, London.
Disney, R.F. and E.R. Whitehouse (2001), “Cross-country Comparisons of Pensioners' Incomes”, Report Series No.142, Department for Work and Pensions, London.
European Union, Economic Policy Committee (2005), “The 2005 Projections of Age-related Expenditure (2004-2050) for the EU-25 Member States: Underlying Assumptions and Projection Methodologies”, European Economy, Special Report No. 4/2005.
European Union, Economic Policy Committee (2006), “The Impact of Ageing on Public Expenditure: projections for the EU-25 Member States on Pensions, Health Care, Long-term Care, Education and Unemployment Transfers (2004-2050)”, European Economy, Special Reports No. 1/2006.
European Union, Social Protection Committee (2005), Privately Managed Pension Provision, Brussels.
Fujisawa, R. and E.R. Whitehouse (2007), “The Role of the Tax System in Old-age Support: Cross country Evidence”, Social, Employment and Migration Working Paper, OECD, Paris, forthcoming.
Förster, M. and M. Mira d'Ercole (2005), “Income Distribution and Poverty in OECD Countries in the Second Half of the 1990s”, Social, Employment and Migration Working Paper No. 22, OECD, Paris.
Fujisawa, R. and E.R. Whitehouse (forthcoming 2007), “The Role of the Tax System in Old-age Support: cross-country evidence”, Social, Employment and Migration Working Paper, OECD, Paris.
Government Actuary’s Department (2005), Occupational Pension Schemes 2004: Twelfth Survey by the Government Actuary, London.
Government Actuary’s Department (2006), Occupational Pension Schemes 2005: Thirteenth Survey by the Government Actuary, London.
Gustman, A. and T. Steinmeier (1992), “The Stampede towards Defined Contribution Plans: Fact or Fiction?”, Industrial Relations, Vol. 31, pp. 361-369.
Hemmings, P. and E.R. Whitehouse. (2006), “Assessing the 2005 Czech Proposals for Pension Reform”, Working Paper No. 496, Economics Department, OECD, Paris.
Jagannathan, R. and N. Kocherlakota (1996), “Why Should Older People Invest Less in Stocks than Younger People?”, Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 20, No. 3, Summer.
Mattil, B. and E.R. Whitehouse (2007), “Individual Incentives to Switch between Public and Private Pension Schemes”, Social, Employment and Migration Working Paper, OECD, Paris, forthcoming.
McHale, J. (1999), “The Risk of Social Security Benefit Rule Changes: Some International Evidence”, Working Paper No. 7031, National Bureau of Economic Research, Cambridge, Mass.
Mehra, R. and E.C. Prescott (1985), “The Equity Premium: a puzzle”, Journal of Monetary Economics, Vol. 15, pp. 145-161.
Mitchell, O.S. and E.L. Dykes (2000), “New Trends in Pension Benefit and Retirement Provisions”, Working Paper No. 2000-01, Pension Research Council, Wharton School, University of Pennsylvania, Philadelphia.
Morissette, R. and A. Johnson (2003), “Are Good Jobs Disappearing in Canada?”, Research Paper No. 239, Analytical Studies Branch, Statistics Canada, Ottawa.
National Association of Pension Funds (2005), Annual Survey, London.
OECD (1995a), Private Pensions in OECD Countries: Canada, Paris.
OECD (1995b), The Tax/Benefit Position of Production Workers: 1991-1994, Paris.
OECD (1998), Maintaining Prosperity in an Ageing Society, Paris.
OECD (2001), Taxing Wages: Income Tax, Social Security Contributions and Cash Family Benefits 1999-2000, Paris.
OECD (2004), OECD Classification and Glossary of Private Pensions, Paris.
OECD (2005a), Pensions at a Glance: Public Policies across OECD Countries, Paris.
OECD (2005b), Society at a Glance: OECD Social Indicators, Paris.
OECD (2006a), Taxing Wages, Paris.
OECD (2006b), Live Longer, Work Longer, Paris.
OECD (2006c), “Ensuring Fiscal Sustainability: assessing recent proposals for pension reform”, Chapter 2 of OECD Economic Surveys: Czech Republic, OECD, Paris.
OECD (2007), Benefits and Work Incentives, Paris.
Palacios, R.J. (2002), “Managing Public Pension Reserves Part II: Lessons from Five Recent OECD Initiatives”, Pension Reform Primer series, Social Protection Discussion Paper No. 0219, World Bank, Washington, DC.
Palacios, R.J. and M. Pallares-Miralles (2000), “International Patterns of Pension Provision”, Pension Reform Primer series, Social Protection Discussion Paper No. 0009, World Bank, Washington, DC.
Pensions Board (various years), Annual Report, Dublin.
Queisser, M. and E.R. Whitehouse (2006), “Neutral or Fair? Actuarial concepts and pension-system design”, Social, Employment and Migration Working Paper No. 40, OECD, Paris.
Salomaki, A. (2006), “Public Pension Expenditure in the EPC and the European Commission Projections: An Analysis of the Projection Results”, European Economy Economic Papers No. 268, European Commission, Brussels.
Schembari, P. (2004), “Pension Plans in Canada”, Pension and Wealth Research Paper No. 1, Statistics Canada, Ottawa.
Whiteford, P. and E.R. Whitehouse (2006), “Pension Challenges and Pension Reforms in OECD Countries”, Oxford Review of Economic Policy, Vol. 22, No. 1, pp. 78-94.
Whitehouse, E.R. (2000), “Administrative Charges for Funded Pensions: Measurement Concepts, International Comparison and Assessment”, Journal of Applied Social Science Studies, Vol. 120, No. 3, pp. 311-361.
Whitehouse, E.R. (2001), “Administrative Charges for Funded Pensions: comparison and assessment of 13 countries”, Private Pension Systems: Administrative Costs and Reforms, Private Pensions Series, Vol. 3, OECD, Paris.
Whitehouse, E.R. (2006), Pensions Panorama: Retirement-Income Systems in 53 Countries, World Bank, Washington, DC.
Whitehouse, E.R. (2007a), “Pension Incentives to Retire”, Social, Employment and Migration Working Paper, OECD, Paris, forthcoming.
Whitehouse, E.R. (2007b), “Life-expectancy Risk and Pensions: Who Bears the Burden?”, Social, Employment and Migration Working Paper, OECD, Paris, forthcoming.
Whitehouse, E.R., B. Mattil and R.J. Palacios (2007), “Rebalancing Retirement-income Systems: The Role of Individual Choice under Mixed Public/Private Pension Provision”, Fiscal Studies, forthcoming.