pensions at a glance 2011 - oecd · 2016-03-29 · 18-mar-2011 7 life expectancy at pensionable age...
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Pensions at a Glance 2011
John P. Martin
Edward Whitehouse Directorate for Employment, Labour and Social Affairs
www.oecd.org/els/social/pensions/PAG
Launch of Pensions at a Glance 2011 report Institute for Fiscal Studies, London, 17 March 2011
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
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Agenda: four key objectives and principles
• Financial sustainability
• Work incentives
• Security in the face of risk and uncertainty
• Benefit adequacy and coverage
Financial sustainability
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Public pension spending
0 5 10 15 20 25
Australia
Ireland
United States
Canada
Netherlands
United Kingdom
OECD-28
Spain
EU-27
Sweden
Germany
Greece
France
Italy
Poland
Level in 2007
Projected change, 2007-60
Public expenditure on old-age and survivors’ benefits, per cent of GDP Note: 2050 for Australia
Demographic (in)determinism
0 10 20 30 40 50 60 70
0
5
10
15
20
25 Public expenditure on pensions, per cent of GDP
Dependency ratio: percentage of adult population aged 65+
2010 R2=0.586
Turkey
Mexico
Korea
Austria
France Italy
Sweden
Germany
United Kingdom, Estonia, Switzerland
Ireland
Poland
Canada, New Zealand, United States, Australia
Netherlands
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Demographic (in)determinism
0 10 20 30 40 50 60 70
0
5
10
15
20
25 Public expenditure on pensions, per cent of GDP
Dependency ratio: percentage of adult population aged 65+
2010 R2=0.586
Demographic (in)determinism
0 10 20 30 40 50 60 70
0
5
10
15
20
25 Public expenditure on pensions, per cent of GDP
Dependency ratio: percentage of adult population aged 65+
2010 R2=0.586
United Kingdom
Turkey
Luxembourg
United States
Mexico
Slovenia
Spain
Korea
Italy
Australia
Canada
Poland
Portugal
Germany
Norway
Belgium
2050 R2=0.112
Greece
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Work incentives
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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
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Normal pension age: long-term rules
0
5
10
15
20
25
62 63 66 68 70
SVK
61 64 65 67 69
FRA
SVN GBR
EST
AUS
DNK
DEU
ISL ISR
USA
NOR
Normal pensionable age, years
Number of OECD-34 countries
ESP
PRT
SWE
TUR
CHE (64F)
JPN
AUT BEL
CAN
CZR
CHL (60F)
FIN
GRC
HUN
IRE ITA (60F)
KOR LUX
MEX
NLD
NZL POL (60F)
Trends in life expectancy at age 65
0
5
10
15
20
25
30
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Additional years of life expectancy at age 65, OECD average
Women
Men
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Life expectancy at pensionable age
10
12.5
15
17.5
20
22.5
25
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Men UK
Men OECD
Women OECD Women UK
Additional years of life expectancy at normal pension age
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
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Pension incentives to work/retire
- 30 - 20 - 10 0 10 20 30
Portugal
Belgium
Italy
Australia
Canada
OECD
United States
New Zealand
United Kingdom
Ireland
Sweden
Japan
Spain
France
Hungary
Finland
Germany
Poland
Netherlands
Turkey (-34), Greece (-90), Luxembourg (-76)
Change in pension wealth from working an additional year, between ages 60 and 65, per cent of annual earnings
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
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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
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Diversification
• ‘It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket’ (Miguel de Cervantes, 1605, Don Quixote)
• 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’
Diversification
• Benefits of diversification depend on correlation between returns
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Diversification
• Benefits of diversification depend on correlation between returns
Investment portfolio
Canada France Germany Italy Japan Sweden United
Kingdom United States
Domestic 21.2 -9.7 -8.6 -22.0 8.3 12.4 -28.2 3.5 (34.4) (66.9) (76.1) (38.1) (69.2) (58.2) (15.3) (86.1)
OECD-8 16.3 -26.0 -14.6 1.9 -15.2 8.8 -11.6 4.8 (47.0) (24.2) (60.3) (93.4) (50.0) (69.7) (60.8) (83.3)
Correlation between real earnings growth and real return on ‘balanced’* portfolio
Correlation coefficient and p-value in per cent Note: ‘Balanced’ portfolio comprises 50% equities, 50% government bonds. ‘Domestic’ includes only home capital markets, OECD-8 diversifies investments between all countries shown.
Incomes in old age
0 25 50 75 100
United States
Australia
Canada
Switzerland
Japan
Netherlands
United Kingdom
Ireland
Denmark
OECD
New Zealand
Sweden
Germany
Hungary
France
Public transfers Work Capital
Sources of income of over 65s, per cent of total
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0 25 50 75 100
Mexico
Australia
Poland
United Kingdom
Ireland
Sweden
Hungary
United States
Canada
Switzerland
OECD
New Zealand
Germany
France
Italy
Public benefits Private benefits
Retirement-income packages
Weighted average pension entitlements, new entrants in 2008, per cent of total
Pension assets
0 25 50 75 100 125
France
Italy
Slovak Republic
Germany
Norway
Sweden
Mexico
Spain
New Zealand
Hungary
Portugal
Poland
Japan
Denmark
Ireland
Canada
Chile
United States
United Kingdom
Australia
Switzerland
Iceland
Netherlands
Private
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Pension assets
0 25 50 75 100 125
France
Italy
Slovak Republic
Germany
Norway
Sweden
Mexico
Spain
New Zealand
Hungary
Portugal
Poland
Japan
Denmark
Ireland
Canada
Chile
United States
United Kingdom
Australia
Switzerland
Iceland
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
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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 20 0
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
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Safety-net benefits: level
0 5 10 15 20 25 30 35 40
Hungary
United States
Japan
Italy
Germany
Poland
France
Australia
OECD
United Kingdom
Sweden
Greece
Ireland
Netherlands
Canada
Denmark
New Zealand
Non-contributory
Contributory minimum
Value of benefit, per cent of economy-wide average earnings
Basic Credit S2P minimum
Safety-net benefits: recipiency
0 10 20 30 40 50 60 70 80
Germany
Japan
Hungary
United States
Switzerland
Poland
United Kingdom
Ireland
OECD
Canada
Spain
Italy
France
Finland
Sweden
Denmark
Portugal
Australia
Greece
Safety-net benefits
Contributory minimum
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Future (mandatory) replacement rates
0
25
50
75
100
125
MEX IRL
JPN GBR
NZL KOR
USA SWE
CAN DEU
EST AUS
FRA NOR
BEL CHE
CHL CZE
FIN POL
OECD PRT
SVK ITA
ISR ESP
SVN DNK
AUT TUR
LUX NLD
ISL HUN
GRC
Net replacement rate, per cent Average earner
Future (mandatory) replacement rates
0
25
50
75
100
125
MEX IRL
JPN GBR
NZL KOR
USA SWE
CAN DEU
EST AUS
FRA NOR
BEL CHE
CHL CZE
FIN POL
OECD PRT
SVK ITA
ISR ESP
SVN DNK
AUT TUR
LUX NLD
ISL HUN
GRC
0
25
50
75
100
125
JPN DEU
MEX IRL
USA SWE
GBR POL
SVK FRA
KOR FIN
EST PRT
CHL ITA
CHE NZL
NOR BEL
ESP AUS
SVN OECD
CAN AUT
CZE HUN
ISR LUX
NLD TUR
GRC DNK
ISL
Net replacement rate, per cent
Net replacement rate, per cent
Average earner
Low earner (50% of average)
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Coverage of private pensions
0 10 20 30 40 50 60 70 80
Portugal
France
Italy
Spain
Finland
Slovak Republic
Ireland
Belgium
New Zealand
Hungary
United States
Czech Republic
United Kingdom
Canada
Poland
Germany
Estonia
Australia
Netherlands
Denmark
Switzerland
Sweden
Quasi-mandatory
Mandatory
Voluntary
Percentage of working-age population
Conclusions
5
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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 the United Kingdom
• Public scheme financially sustainable
• Retirement provision well diversified (public/ private, PAYG/funding
• Pension system provides strong work incentives
– but continuing problem of other benefit pathways into early retirement, such as disability benefits
• Adequacy of benefits and degree of private-pension saving remain a challenge
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Pensions at a Glance 2011 RETIREMENT-INCOME SYSTEMS IN OECD AND G20 COUNTRIES
Published 17 March 2011
www.oecd.org/els/social/pensions/PAG