Reforming Retirement-Income Systems: Lessons from the Recent Experiences of OECD Countries

23 Pages Posted: 5 Jun 2008

See all articles by John P. Martin

John P. Martin

Organization for Economic Co-Operation and Development (OECD) - Directorate for Employment, Labour and Social Affairs (ELS); IZA Institute of Labor Economics; Sciences Po

Edward Whitehouse

Axia Economics

Abstract

Reforming pensions looms large over the policy agenda of OECD countries. This is hardly surprising since public spending on pensions accounted on average for 7 per cent of OECD GDP in 2005; and this pension spending effort is set to increase significantly over the coming decades in response to population ageing. Pension policy is indeed challenging and controversial because it involves long-term decisions in the face of numerous short-term political pressures. However, the status quo does not always win out so far as pension reform in concerned: public finance crises and the looming threat of ageing populations have proved effective spurs for reform. As a result, much has been done since the early 1990s to make pension systems fit for the future. Nearly all the 30 OECD countries have made at least some changes to their pension systems in that period. In 16 of them, there have been major reforms that will significantly affect future benefits. The purpose of this paper is to summarise these reforms and highlight the main lessons. Section 1 looks at which countries reformed their pensions systems and which did not. It also examines the fiscal challenges posed by public pensions. Section 2 describes the measures in the reforms themselves. These include, among other things, increases in pension age, changes in the way benefits are calculated and smaller pension increases in retirement than in the past. Section 3 explores the impact of these reforms on future pension entitlements of today's retirees, showing a clear trend to a lower pension promise for today's workers than for past generations. This means that people will need to save more for their own retirement via private pension schemes, an issue examined in Section 4. This is followed in Section 5 by a review of the main outstanding challenges facing pension systems in OECD countries. The final section presents some concluding remarks.

Keywords: reform of public and private pensions, replacement rates, pension wealth, mandatory and voluntary pensions, OECD pension reform challenges

JEL Classification: H55, I38

Suggested Citation

Martin, John P. and Whitehouse, Edward, Reforming Retirement-Income Systems: Lessons from the Recent Experiences of OECD Countries. , Vol. , pp. -, . Available at SSRN: https://ssrn.com/abstract=1139911 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

John P. Martin (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Directorate for Employment, Labour and Social Affairs (ELS) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Sciences Po ( email )

rue saint guillaume
Paris
France

Edward Whitehouse

Axia Economics ( email )

38 Concanon Road
London SW2 5TA
United Kingdom

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