OECD studies pension reforms, aging working populations of G20 countries in new report

‘Why is it so unpopular,’ the editorial asks, ‘to work longer even among people with longer life expectancy and in good health? Is the proposition of retirement and leisure so much more attractive than work, even if working longer is rewarded with higher pensions? Does it perhaps make no economic sense to work longer? Or are people being pushed out of work by their employers who do not see the benefits of keeping older workers on board?’¹

The Organisation for Economic Development (OECD) takes up these questions in its seventh edition of Pensions at a Glance, a comprehensive study published in December 2017 and that takes a close look at pension measures enacted or entered into legislation by OECD countries between September 2015 and September 2017.

The report also provides an in-depth view of flexible retirement policies and includes a comprehensive selection of pension policy indicators for all OECD and G20 countries

The authors of the editorial raise the afore-quoted questions in response to what they hear as calls for more flexible retirement rules in the public debate. While the public has traditionally sided with maintaining current age limits, many people wish to work past traditional age limits and are not necessarily leaving the workplace at the magic age of 65.

This means that older workers need more flexible options, such as the ability to combine pensions and work. The authors cite a recent UK survey that suggests that almost two-thirds of EU citizens say it appeals more to them to keep working and combine a part-time job and partial pension than to fully retire, while others would like to retire from full-time work early even with a reduced pension, but be able to supplement that pension through part-time work.

Flexible pensions are a two-edged sword, they caution. While increasing well-being among those who would like to combine work and a partial pension, and having this choice may entice people into working longer, which, in turn, can help increase future pensions as well as contributing to higher tax revenues.

‘On the other hand,’ they write, ‘introducing flexible retirement carries risks, as individuals may underestimate their financial needs in retirement and thus choose to leave early with reduced benefits and find themselves later at risk of old-age poverty.’

With pensions across OECD countries slowing, there are concerns about the financial sustainability and pension adequacy of the current state of pension systems. The key findings of the report indicate:

• Most OECD countries have enacted pension reforms since the last publication of Pension at a Glance (OECD, 2015). However, the reforms have been fewer and less widespread than in previous years.
• Reforms will potentially have a large impact on the pension system in Canada, the Czech Republic, Finland, Greece and Poland.
• The retirement age was changed in six countries. Three of them actually reduced the long-term planned retirement age, including the Czech Republic, and Poland where this change will directly lead to substantially lower replacement rates.
• Based on legislated measures, the normal retirement age will increase by 1.5 and 2.1 years on average for men and women, respectively, in the OECD, reaching just under 66 years over the next four to five decades.
• The future normal retirement age varies enormously from 59 years in Turkey (women only) and 60 years in Luxembourg and Slovenia to an estimated 74 years in Denmark.
• The net replacement rate from mandatory pension schemes for full-career average-wage earners is equal to 63%, on average in OECD countries, ranging from 29% in the United Kingdom to 102% in Turkey. Low-income (half the average wage) earners generally have higher net replacement rates than average-income earners, by 10 points, on average across the OECD.
• In non-OECD G20 countries, net replacement rates for full-career average-wage earners range from 17% in South Africa to 99% in India. Only Indonesia implemented a major reform over the last two years by introducing a mandatory defined benefit pension scheme.
• Many countries have introduced automatic links between pension benefits and life expectancy. Funded defined contribution schemes have automatic links through more expensive annuities with increasing longevity, but links also exist in notional defined contribution systems, in point systems (Germany) and in defined benefit schemes (e.g. in Finland and Japan).

A copy of Pensions at a Glance 2017: OECD and G20 Indicators is available for download here. ^[1]

 

¹ OECD (2017), Pensions at a Glance 2017: OECD and G20 Indicators, OECD Publishing, Paris.

http://dx.doi.org/10.1787/pension_glance-2017-en