Pensions at a Glance
2015
OECD AND G20 INDICATORS
Summary by Nathalie Stroobants
CHAPTER 1: RECENT PENSION REFORMS
1.1. Introducton
Pension systems are striving to deliver adequate retrement income while remaining fnancially
sustainable.
Populaton ageing driven by increasing longevity and low fertlity rates poses a persistent
challenge.
Ageing directly afects the fnancing of pay-as-you-go (PAYG) pension schemes, as a decreasing
number of working-age people has to sustain pension levels for an increasing number of elderly.
o Even defned-contributon (DC) schemes are not immune to the lowering of the
economy’s output potental which might be induced by demographic changes
The economic crisis and its afermath of slow economic growth and large government debt
levels made everything worse.
Stubbornly high unemployment in many countries and record-low interest and infaton rates
persist
Financial stability is no longer a problem for the future = it is for now.
Given that public pension expenditure represents on average 18% of total public spending across
OECD countries pension reform is typically part of the strategy followed by countries that
need to consolidate public fnances and curb debt ratos by actng on the spending side
This chapter reviews and analyses the pension measures enacted by OECD Countries between
2013 and 2015
The success of reforms aiming at containing future pension expenditure will depend on both the
efectve implementaton of previously agreed measures and maintaining the momentum for
further pension reforms.
o Partcularly those that encourage individuals to work more and longer strengthen the
productve capacites of the economy thereby improve the scope of pension systems
to deliver adequate retrement income promises.
Relatve income poverty rates of the elderly have fallen since the mid-1980s, thus implying
higher incomes relatve to other groups in society
Poverty risks have now shifed towards the young relatve old-age poverty has steadily and
substantally declined, and the 66-75 age group is now the least at risk of poverty
Key Findings
Most OECD countries have been actve in changing their pension system
Eforts were mostly driven by the widespread need for fscal consolidaton
A majority of countries indeed implemented reforms to improve the fnancial sustainability of
their pension systems
Improving Financial Sustainability
The most popular measure was to strengthen the incentves to work by increasing the
minimum retrement age enlarging the contributon base
1
, Almost no country resorted to direct nominal beneft cuts.
A much larger number of countries changed the indexaton of pension benefts to less
generous upratng mechanisms
Many countries raised revenues by increasing taxes or contributon rates in defned-beneft
systems.
Measures to curb pension administraton costs were quite common
Increasing RetrementtIncome Adequacy
Several countries have taken measures to increase the coverage of voluntary private pension
schemes.
Some countries awarded retroactve pension credits or reduced the impact of missing years
of contributons on pension levels.
In some defned-contributon schemes, contributon rates have been increased, while some
countries chose to reduce the efectve taxaton of pensioners’ income.
In a number of countries management costs have been lowered and several improvements
were made to the security of pension investments.
1.2. Overview of Reforms
This framework (Table 1.1) illustrates the key trade-ofs between improving fnancial
sustainability and increasing pension adequacy.
For example, in a system in which there is a weak link between contributons and beneft
payments, such as in defned beneft schemes, increases (reductons) in pensions deteriorate
(improve) fnancial balances.
Consequently, the countries that achieve a double plus (++) in the Table 1.1 took a combinaton
of measures such as increasing contributons in defned contributon schemes and raising
retrement ages or cutng pathways to early retrement.
o This for example happened in Australia where the contributon rate is planned to
increase as is the retrement age.
In 14 OECD countries the focus has been on increasing fnancial sustainability ofen through a
longer working life.
Improving income adequacy was also common as 11 OECD countries introduced measures that
will improve pension benefts at least for some groups of people
In several countries measures with mixed outcomes were implemented.
The overview of the pension reforms is supplemented by a descripton in greater detail in Annex
1.A1. All reforms are classifed in eight diferent categories: coverage, diversifcaton and
security, pension benefts, taxes, indexaton, work incentves, administratve efciency and a
residual group of other reforms. The grouping corresponds to the main objectves and principles
of retrement-income systems
1.3. Improving Financial Sustainability
This secton deals with policy measures that, temporarily or permanently, enhance fnancial
sustainability of pension systems
Improving Financial Sustainability by Reducing Net Pension Benefts
Improving fnancial sustainability by reducing net pension benefts is possible in several ways,
including changes in:
2
, outright reductons in beneft levels or pension formulae,
lowering the indexaton of benefts in payment including through automatc adjustment
mechanisms,
raising contributon rates in defned-beneft schemes, and
increasing taxes and social security contributons on pension income.
Pension benefits
Very few OECD countries have carried out extensive reforms to improve the fnancial
sustainability through nominal beneft cuts.
Indexaton1
The longer retrement lasts the more important indexaton becomes for adequacy.
In order to contain public pension expenditure, some countries froze beneft indexaton as a
temporary measurefollowing the crisis.
Taxes and contributons
Many countes increased revenues for the fnancing of public pensions through higher taxes
and contributons.
These higher efectve taxes can, however, discourage partcipaton and/or lower savings
rates in the voluntary schemes afected by the reform
o In France, the contributon rate will increase by 0.3 percentage points by 2017 for
both employees and employers. Moreover, the 10% pension bonus for having three
children will be subject to taxaton.
o In Finland, pensioners have paid an extra tax of 6% on pension income exceeding
EUR 45 000 since 2013
o In Sweden, tax deductons for individual contributons to private personal pensions
will be phased out entrely by 2016.
Other measures to improve fnancial sustainability
Strengthening work incentves and enabling more people to work at higher ages can help
safeguard the fnancial sustainability of pension systems.
Another possibility to improve fnancial sustainability is to promote increased administratve
efciency of pension systems.
With the use of automatsaton and new technologies the cost of running pension systems can
be reduced
Pension Age
The employment rate falls with age well before the retrement age in all OECD and G20
countries.
o For individuals of age 55 to 59 the average employment rate across all OECD countries
was equal to 67% in 2014, whereas it was 44% and 20% for those aged 60-64 and 65-69
respectvely
Many OECD countries have reformed their pension rules in order to extend working lives in the
broader context of increasing life expectancy.
o This means that workers need to contribute more towards their pension to help fnance
longer expected duratons in retrement.
1
The method with which pension benefts are adjusted to take into account changes in the cost of living (e.g.
prices and/or earnings
3
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