Pensions at a Glance 2011
Anna Cristina D’Addio & Andrew Reilly Social Policy Division
OECD
Agenda
1. Brief history of the project2. Methodology3. Structure of pension systems4. Assumptions5. Results
Brief history of the project
Project history
• Pensions at Glance– 30 OECD countries– 2005
Project history
• Pensions at Glance– 30 OECD countries– 2005
• Pensions Panorama– 53 countries– 2006
Project history
• Pensions at Glance– 30 OECD countries– 2005– 2007
• Pensions Panorama– 53 countries– 2006
Project history
• Pensions at Glance– 30 OECD countries– 2005– 2007– 2009
• Pensions Panorama– 53 countries– 2006
Project history
• Pensions at Glance– 30 OECD countries– 2005– 2007– 2009– 2011 (42 countries)
• Pensions Panorama– 53 countries– 2006
Methodology
Comparing pension systems• Fiscal approach:
– projections of pension expenditure
• Institutional approach:– describing pension systems’ parameters
• Income-distribution analysis:– comparing incomes of older people and the population
as a whole
Comparing pension systems• Fiscal approach:
– deals with aggregate pension expenditure but silent on their distribution among individuals
• Institutional approach:– far too easy to get bogged down in details and miss key
differences
• Income-distribution analysis:– backward looking
A microeconcomic approach• Model of pension entitlements at individual level• Goal: indicators for cross-country monitoring
pension systems• Consistent across a broad range of countries• Covers all mandatory pensions• Includes effect of income tax and social security
contributions
Structure of pension systems
Taxonomy of pension schemes
Retirement -income system
First tierMandatory, adequacy
Basic
Resource - tested/social assistance
Minimum pension(second tier)
Second TierMandatory, savings
Public
Defined benefit
Points
Notional accounts
Private
Defined benefit
Defined contribution
Third TierVoluntary, savings
Private
Defined benefit
Defined contribution
Taxonomy of pension schemes
Retirement -income system
First tierMandatory, adequacy
Basic
Resource - tested/social assistance
Minimum pension(second tier)
Second TierMandatory, savings
Public
Defined benefit
Points
Notional accounts
Private
Defined benefit
Defined contribution
Third TierVoluntary, savings
Private
Defined benefit
Defined contribution
Taxonomy of pension schemes
Retirement -income system
First tierMandatory, adequacy
Basic
Resource - tested/social assistance
Minimum pension(second tier)
Second TierMandatory, savings
Public
Defined benefit
Points
Notional accounts
Private
Defined benefit
Defined contribution
Third TierVoluntary, savings
Private
Defined benefit
Defined contribution
Taxonomy of pension schemes
Retirement -income system
First tierMandatory, adequacy
Basic
Resource - tested/social assistance
Minimum pension(second tier)
Second TierMandatory, savings
Public
Defined benefit
Points
Notional accounts
Private
Defined benefit
Defined contribution
Third TierVoluntary, savings
Private
Defined benefit
Defined contribution
Taxonomy of pension schemes
Retirement -income system
First tierMandatory, adequacy
Basic
Resource - tested/social assistance
Minimum pension(second tier)
Second TierMandatory, savings
Public
Defined benefit
Points
Notional accounts
Private
Defined benefit
Defined contribution
Third TierVoluntary, savings
Private
Defined benefit
Defined contribution
Assumptions
Key assumptions• Full-career workers
– contribute every year from age 20 (or standard entry age) to normal pension eligibility age
• Across the earnings range (0.5 to 2.0 times average)• Forward looking: all legislated reforms fully in place
– ‘steady-state’ assumption– new labour-market entrants
• Standard macroeconomic and financial assumptions– earnings growth, real rate of return (on funded
pensions), discount rate (for actuarial calculations), mortality rates: projections for 2050
Results
What’s new?• More countries
– four new OECD members– other G20 economies (Argentina, Brazil, China, India,
Indonesia, Russia, Saudi Arabia, South Africa, EU27)
• More indicators• Five special chapters
– pensionable age and life expectancy, 1950-2050– trends in retirement and in working at older ages– pension incentives to retire– helping older workers find and retain jobs– linking pensions to life expectancy
Agenda: four key objectives and principles
• Financial sustainability• Work incentives• Security in the face of risk and uncertainty• Benefit adequacy and coverage
Financial sustainability
1
Public pension spending
0 5 10 15 20 25
Ireland
Latvia
Estonia
Cyprus
Netherlands
Romania
United Kingdom
Lithuania
Slovak Republic
Malta
Czech Republic
Bulgaria
Spain
Luxembourg
Average
Norway
Denmark
Sweden
Slovenia
Belgium
Finland
Germany
Hungary
Portugal
Poland
Greece
Austria
France
Italy
Levelin 2007
Change2007-2060
Public expenditure on old-age and survivors’ benefits, per cent of GDP
Demographic (in)determinism
0 10 20 30 40 50 60 70
0
5
10
15
20
25 Public expenditure onpensions, per cent of GDP
Dependency ratio: percentage of adult population aged 65+
2010R2=0.586
Turkey
Mexico
Korea
Austria
FranceItaly
Sweden
Germany
United Kingdom,Estonia, Switzerland
Ireland
Poland
Canada, New Zealand,United States, Australia
Netherlands
Norway
Demographic (in)determinism
0 10 20 30 40 50 60 70
0
5
10
15
20
25 Public expenditure onpensions, per cent of GDP
Dependency ratio: percentage of adult population aged 65+
2010R2=0.586
Demographic (in)determinism
0 10 20 30 40 50 60 70
0
5
10
15
20
25 Public expenditure onpensions, per cent of GDP
Dependency ratio: percentage of adult population aged 65+
2010R2=0.586
United Kingdom
Turkey
Luxembourg
United States
Mexico
Slovenia
Spain
Korea
Italy
Australia
Canada
Poland
Portugal
Germany
NorwayBelgium
2050R2=0.112
Greece
Work incentives
2
Trends in pensionable ages
60
61
62
63
64
65
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Men
Women
Pensionable age, OECD average, years
Low point
Today
Normal pension age: long-term rules
0
5
10
15
20
25
62 63 66 68 70
SVK
61 64 65 67 69
FRASVN GBREST
AUSDNKDEUISLISR
USANOR
Normal pensionable age, years
Number of OECD-34 countries
ESPPRT
SWE
TURCHE (64F)
JPN
AUTBELCAN
CZRCHL (60F)
FINGRCHUN
IREITA (60F)
KORLUXMEX
NLDNZLPOL (60F)
Pension incentives to work/retire• Change in pension wealth from working an
additional year– age 60-65: main retirement window– express as proportion of individual earnings: implicit
tax or subsidy
Pension incentives to work/retire
Pension incentives to work/retire• Change in pension wealth from working an
additional year– age 60-65: main retirement window– express as proportion of individual earnings: implicit
tax or subsidy
• Level of pension wealth already accrued– at age 60: beginning of retirement window– express as a multiple of individual earnings
Retirement incentives summary
Change in pension wealth from age 60 to 65
Low Middle High
Level of pension wealth at age 60
Low Mexico Germany, Ireland, Sweden, UK, US
Chile, Czech R., Japan, Korea, Poland
Middle Australia, Belgium, Canada, Estonia
Denmark, Finland,New Zealand
Austria, Israel,Norway, Switzerland
High Greece, Italy, Luxembourg, Portugal, Slovenia, Turkey
France, Hungary, Spain
Iceland, Netherlands, Slovak R.
Security
3
Diversification• Pay-as-you-go public pensions:
– sustainable rate of return = earnings growth + employment growth
• Funded pensions– rate of return in capital market directly or indirectly
affects pension value
• Think of pension package as a ‘portfolio’ of different ‘assets’
Incomes in old age
Balance between public and private provision of mandatory pensionsPercentage of weighted average pension wealth
Weighted average pension entitlements, new entrants in 2008, per cent of total
Pension assets
0 25 50 75 100 125
FranceItaly
Slovak RepublicGermany
NorwaySwedenMexico
SpainNew Zealand
HungaryPortugal
PolandJapan
DenmarkIrelandCanada
ChileUnited States
United KingdomAustralia
SwitzerlandIceland
Netherlands
Private
Pension assets
0 25 50 75 100 125
FranceItaly
Slovak RepublicGermanyNorwaySwedenMexico
SpainNew Zealand
HungaryPortugal
PolandJapan
DenmarkIrelandCanada
ChileUnited States
United KingdomAustralia
SwitzerlandIceland
Netherlands
0 25 50 75 100
Poland
United Kingdom
France
Norway
Belgium
Spain
Portugal
Australia
New Zealand
Canada
Ireland
United States
Japan
Sweden
Finland
Other investments
Government bonds and bills
Private Public
Adequacy and coverage
4
What is adequacy?• Narrow definition: absolute standard of living• Broad definition: relative standard of living
• Analytical tools:– income-distribution data– simulation of pension entitlements
Income poverty
0 5 10 15 200
5
10
15
20
25
30
35 Old-age poverty rate,per cent
Population poverty rate, per cent
AUS
BEL
CAN
CZE
DNK
FIN
DEU
GRC
HUN
IRL
ITA
JPN
LUX
MEX
NLD
NZL
NOR
POL
PRT
SVK
ESP
SWE
CHE
TUR
GBR
USA
Old more likely to be poor
Old less likely to be poor
AUT
FRA
ISL
Safety nets (benefits level)
Future (mandatory) replacement rates
0
25
50
75
100
125
MEXIRL
JPNGBR
NZLKOR
USASWE
CANDEU
ESTAUS
FRANOR
BELCHE
CHLCZE
FINPOL
OECDPRT
SVKITA
ISRESP
SVNDNK
AUTTUR
LUXNLD
ISLHUN
GRC
Net replacement rate, per cent Average earner
Future (mandatory) replacement rates
0
25
50
75
100
125
MEXIRL
JPNGBR
NZLKOR
USASWE
CANDEU
ESTAUS
FRANOR
BELCHE
CHLCZE
FINPOL
OECDPRT
SVKITA
ISRESP
SVNDNK
AUTTUR
LUXNLD
ISLHUN
GRC
0
25
50
75
100
125
JPNDEU
MEXIRL
USASWE
GBRPOL
SVKFRA
KORFIN
ESTPRT
CHLITA
CHENZL
NORBEL
ESPAUS
SVNOECD
CANAUT
CZEHUN
ISRLUX
NLDTUR
GRCDNK
ISL
Net replacement rate, per cent
Net replacement rate, per cent
Average earner
Low earner (50% of average)
Coverage of private pensions
0 10 20 30 40 50 60 70 80
PortugalFrance
ItalySpain
FinlandSlovak Republic
IrelandBelgium
New ZealandHungary
United StatesCzech Republic
United KingdomCanadaPoland
GermanyNorway
AustraliaNetherlands
DenmarkSwitzerland
Sweden
Quasi-mandatoryMandatoryVoluntary
Percentage of working-age population
Conclusions
5
General policy direction• Balancing objectives of benefit adequacy and
financial sustainability– challenges of crisis and ageing– need to achieve both
• Improving the terms of the trade off– working longer– private pensions– targeting
Implications for Norway?
Pensions at a Glance 2011RETIREMENT-INCOME SYSTEMS IN
OECD AND G20 COUNTRIES
Published 17 March 2011
[email protected]@oecd.orgwww.oecd.org/els/social/pensions
Pensions at a Glance 2011RETIREMENT-INCOME SYSTEMS IN
OECD AND G20 COUNTRIES
Published 17 March 2011
[email protected]@oecd.orgwww.oecd.org/els/social/pensions
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