Pensions at a Glance 2011 RETIREMENT-INCOME SYSTEMS IN OECD AND G20 COUNTRIES The theme of this fourth edition of Pensions at a Glance is pensions, retirement and life expectancy. Many countries have increased pension ages in the face of population ageing and longer lives. Some have Pensions at a Glance introduced an automatic link between pensions and life expectancy. Improvements to the incentives to work rather than retire are also a common part of recent pension-reform packages. However, ensuring that there are enough jobs for older workers remains a challenge. 2011 An in-depth look at these important policy issues is provided by fi ve special chapters on: pension ages, retirement behaviour, pension incentives to retire, the demand for older workers and linking pensions to life RETIREMENT-INCOME SYSTEMS IN OECD expectancy. This edition updates information on the key features of pension provision in OECD countries and provides projections of retirement income for today’s workers. It offers an expanded range of 36 indicators, AND G20 COUNTRIES covering the design of national retirement-income provision, pension entitlements, incomes of older people, the fi nances of pension systems, the demographic and economic context in which pension systems operate and private pensions. More countries are analysed than in previous editions, including four new members of the OECD: Chile, Estonia, Israel and Slovenia. Where possible, data are also provided for the other major economies in the Glance2011 a at Pensions G20: Argentina, Brazil, China, India, Indonesia, Russia, Saudi Arabia and South Africa. Along with data on the European Union’s 27 member states, this brings to 43 the number of economies covered in the report. About Pensions at a Glance... “An extraordinarily useful and careful compilation of pension information for a wide-range of countries, presented in a common format and following a thoughtful structure. The authors have brought cross-national pension comparisons to a new level, and they are to be commended for their intensive efforts. [This] represents some of the smartest comparative work out there, by people intimately familiar with the nuances – and complexities – of comparative pension work.” Olivia Mitchell, Director of the Boettner Centre for Pensions and Retirement Research, Wharton School, RETIREMENT-INCOMESYSTEMS OECDIN AND G20 COUNTRIES University of Pennsylvania. Please cite this publication as: OECD (2011), Pensions at a Glance 2011: Retirement-income Systems in OECD and G20 Countries, OECD Publishing. http://dx.doi.org/10.1787/pension_glance-2011-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information. ISBN 978-92-64-09523-6 81 2011 01 1 P www.oecd.org/publishing -:HSTCQE=U^ZWX[: Pensions at a Glance 2011 RETIREMENT-INCOME SYSTEMS IN OECD AND G20 COUNTRIES This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. Please cite this publication as: OECD (2011), Pensions at a Glance 2011: Retirement-income Systems in OECD and G20 Countries, OECD Publishing. http://dx.doi.org/10.1787/pension_glance-2011-en ISBN 978-92-64-09523-6 (print) ISBN 978-92-64-09628-8 (PDF) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD 2011 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. FOREWORD Foreword This fourth edition of Pensions at a Glance provides an expanded range of indicators for comparing pension policies and the outcomes of these policies between OECD countries. The indicators are also, where possible, provided for new OECD member countries and the other major economies that are members of the G20. In Part I, five special chapters provide deeper analysis of the central issues of pensions, retirement and life expectancy. This report was prepared by the pensions team in the Social Policy Division of the OECD’s Directorate for Employment, Labour and Social Affairs. The team comprises Edward Whitehouse, Anna Cristina D’Addio and Andrew Reilly. National officials – particularly delegates to the OECD Working Party on Social Policy and members of the OECD pension expert group – provided active and invaluable input to the report. For OECD countries, the results of the OECD pension models have been confirmed and validated by national authorities. Chapter 1 in Part I on “Pensionable age and life expectancy, 1950-2050” was written by Edward Whitehouse. It is based on earlier work with Rafal Chomik of the Department of Work and Pensions in the United Kingdom while he was seconded to the OECD Secretariat. Anna Cristina D’Addio and Edward Whitehouse prepared Chapter 2 on “Trends in retirement and in working at older ages” and Chapter 3 “Pension incentives to retire”. Anna D’Addio, Mark Keese (of the Employment Analysis and Policy Division of the OECD’s Directorate for Employment, Labour and Social Affairs) and Edward Whitehouse wrote Chapter 4 “Helping older workers find and retain jobs”. Edward Whitehouse was responsible for Chapter 5 “Linking pensions to life expectancy”, the final special chapter in Part I. The indicators related to private pensions were mainly provided by the OECD’s private-pensions unit in the Directorate for Financial and Enterprise Affairs: Pablo Antolín, Stephanie Payet, Jean-Marc Salou and Juan Yermo. The report has benefited from the commentary of many national officials and colleagues in the OECD Secretariat, notably John P. Martin, Monika Queisser, Stefano Scarpetta, Anne Sonnet and Fiona Stewart. It is a joint project co-financed by the European Commission and the OECD. The OECD pension models, that underpin the indicators of pension entitlements, use the APEX (Analysis of Pension Entitlements across Countries) models developed by Axia Economics. PENSIONS AT A GLANCE 2011: RETIREMENT-INCOME SYSTEMS IN OECD AND G20 COUNTRIES © OECD 2011 3 TABLE OF CONTENTS Table of Contents Editorial – Three Solutions to the Pensions Paradox . 9 ISO Country Codes . 12 Executive Summary . 13 Part I Policy Issues: Pensions, Retirement and Life Expectancy Chapter 1. Pensionable Age and Life Expectancy, 1950-2050 . 19 1.1. Defining “pensionable age” . 20 1.2. Trends in pensionable ages over a century . 22 1.3. Expected duration of retirement: Life expectancy at pensionable age . 27 1.4. Conclusions and policy implications . 33 Notes . 36 References. 36 Chapter 2. Trends in Retirement and in Working at Older Ages. 39 2.1. Older workers: Labour-market participation . 40 2.2. Retirement and labour-market exit. 41 2.3. Pathways into retirement . 44 2.4. Fiscal imperatives and retirement in the future . 44 2.5. Summary and conclusions . 47 Notes . 47 References. 47 Chapter 3. Pensions Incentives to Retire . 49 3.1. Measuring pension incentives to retire . 50 3.2. Incentives matter. 54 3.3. Changes in pension wealth from working longer. 55 3.4. Individual earnings and changes in pension wealth . 56 3.5. The role of taxes: Changes in net pension wealth from working longer. 58 3.6. Adding a dimension to the analysis: Levels of pension wealth . 59 3.7. Summary of the results for age 60-64 . 61 3.8. Policy implications. 62 Notes . 65 References. 66 PENSIONS AT A GLANCE 2011: RETIREMENT-INCOME SYSTEMS IN OECD AND G20 COUNTRIES © OECD 2011 5 TABLE OF CONTENTS Chapter 4. Helping Older Workers Find and Retain Jobs . 67 4.1. A greyer workforce. 68 4.2. Ageism. 68 4.3. Labour costs and older workers. 70 4.4. Labour-market regulation. 73 4.5. Skills and training . 74 4.6. Working conditions . 75 4.7. Help in finding jobs . 75 4.8. Jobs for younger and older workers . 76 4.9. Policy conclusions . 78 Notes . 78 References. 79 Chapter 5. Linking Pensions to Life Expectancy. 81 5.1. Life expectancy and recent pension reforms. 82 5.2. How uncertain is life expectancy?. 86 5.3. Two benchmark pension plans . 88 5.4. Pension entitlements and uncertain life expectancy . 89 5.5. An indicator of automatic life-expectancy links in pension systems . 93 5.6. The impact of taxes . 95 5.7. The impact of individual earnings . 96 5.8. Living longer, working longer?. 97 5.9. Conclusions and policy implications . 98 Notes . 100 References. 101 Part II Pension-policy Indicators Chapter 1. Design of Pension Systems. ..