Lower pensions

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Making pension systems financially sustainable in the face of population ageing has obliged governments to carry out reforms. This has meant finding savings, but also lower retirement incomes. According to the latest edition of Pensions at a Glance, most of the OECD countries surveyed saw a decline in benefits as a result of pension reforms, affecting retirement incomes of average earners, but also the poorest pensioners (see graph).

Relative pension levels for this group dropped more than 10 percentage points in Mexico (from 39% of average earnings to 28%), Poland (50% to 39%) and Portugal (from 58% to 45%). The shift from public to private sector pension provision is an indirect reason for this downward trend, the report points out, with a more direct cause being the actual move from “defined-benefit” schemes whereby workers are promised a share of pre-retirement earnings, to “defined-contributions” based on how much people put in and any interest earned.

Also, pension cuts for women have been large in some countries where they retire earlier than men and have fewer years to contribute. Net relative pension levels have increased in just three of the 16 countries surveyed–Finland (slightly), Hungary and the UK, though in the latter, from a very low base.

Order the 200-page Pensions at a Glance: Public Policies across OECD Countries at www.oecdbookshop.org ISBN 978-92-64-03214-9

©OECD Observer No. 262, July 2007