Pensions at a Glance 2011

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


Project history

• Pensions at Glance– 30 OECD countries– 2005– 2007– 2009


Project history

• Pensions at Glance– 30 OECD countries– 2005– 2007– 2009– 2011 (42 countries)


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

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


0 10 20 30 40 50 60 70

0

5

10

15

20



2010R2=0.586


0 10 20 30 40 50 60 70

0

5

10

15

20



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

mailto:[email protected]

mailto:[email protected]

Pensions at a Glance 2011

Documents

Transcript of Pensions at a Glance 2011