When it comes to providing for a worker’s retirement, not every country has a clean bill of health. Tables ranking the way in which governments provide for their aging populations show large discrepancies among nations, both in terms of actual retirement income and the long-term sustainability of government programs.
Pensions at a Glance
Every two years, the Organization for Economic Cooperation and Development issues a report, "Pensions at a Glance," which compares the pension policies of OECD countries and other major economies. The report ranks countries according to the percentage of preretirement income a worker can expect to receive from the government when he retires. The 2013 report shows significant cross-country variation, with economies at the bottom of the table offering replacement rates of less than a third of the worker's preretirement income, compared with the best providers, which offer more than 90 percent.
The Mercer Study
The Melbourne Mercer Global Pension Index, jointly prepared by the actuarial firm Mercer and the Australian Centre for Financial Studies, compares the pension programs of 18 major economies. Unlike the OECD rankings, the Mercer ranking takes three indices into account -- adequacy of retirement provision, sustainability and integrity. The sustainability measure analyzes the country's risk profile, or how well the country grows its pension fund though mandatory contributions and sound investment strategies. Countries scoring high on the integrity index show good pension governance.
The United States
Retirees in the United States can expect an income replacement of 41 percent, according to the OECD. For high-income workers, the figure drops substantially to just 33.4 percent. However, much of a U.S. citizen’s pension is made up of voluntary programs such as company contributions and 401ks, rather than a social security pension. Thus, the OECD ranking, which looks only at government contributions, gives an incomplete picture. The United States ranks in the middle in the Mercer study.
The Netherlands tops the OECD ranking, offering the average worker a retirement income equivalent to 90 percent of his preretirement wage. The country also makes good provisions for low and above-average earners, with workers in all three categories enjoying replacement rates around the 90 percent mark. The Netherlands ranks second in the Mercer study.
Mercer ranks Denmark’s pension system as the best in the world. The country provides its retirees with a basic pension, topped off by a means-tested supplementary pension benefit and a private pension. The average worker in Denmark receives a replacement income of 83.7 percent, according to the OECD. Denmark is one of the few countries that provides its lower-income workers with a higher pension than their working wage.
The United Kingdom
At the other end of the scale, British retirees can expect to receive just 37.9 percent of the average worker’s income, according to the OECD scale. Higher-income workers fare worse, receiving just 22.5 percent. The United Kingdom ranks mid-table in the Mercer study. Other poor performers include China, India and Japan.
- Organization for Economic Cooperation and Development: Pensions At A Glance -- Gross Pension Replacement Rates
- Mercer: Denmark Has The Best Retirement Income In The World http://www.mercer.com/press-releases/1484965
- Organization for Economic Cooperation and Development: Pensions At A Glance -- Denmark
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.