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

Author

Listed:
  • Martin, John P.

    () (University College Dublin)

  • Whitehouse, Edward

    () (OECD)

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.

Suggested Citation

  • Martin, John P. & Whitehouse, Edward, 2008. "Reforming Retirement-Income Systems: Lessons from the Recent Experiences of OECD Countries," IZA Discussion Papers 3521, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3521
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    References listed on IDEAS

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    1. Choi, James J. & Laibson, David & Madrian, Brigitte C., 2004. "Plan Design and 401(K) Savings Outcomes," National Tax Journal, National Tax Association, vol. 57(2), pages 275-298, June.
    2. Edward R. Whitehouse, 2007. "Life-Expectancy Risk and Pensions: Who Bears the Burden?," OECD Social, Employment and Migration Working Papers 60, OECD Publishing.
    3. Peter Whiteford & Edward Whitehouse, 2006. "Pension Challenges and Pension Reforms in Oecd Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 22(1), pages 78-94, Spring.
    4. Thai-Thanh Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Publishing.
    5. Queisser, Monika & Whitehouse, Edward, 2005. "Pensions at a glance: public policies across OECD countries," MPRA Paper 10907, University Library of Munich, Germany.
    6. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2009. "The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States," NBER Chapters,in: Social Security Policy in a Changing Environment, pages 167-195 National Bureau of Economic Research, Inc.
    7. Whitehouse, Edward, 2000. "Administrative charges for funded pensions: An international comparison and assessment," MPRA Paper 14172, University Library of Munich, Germany.
    8. Pablo Antolín & Edward R. Whitehouse, 2009. "Filling the Pension Gap: Coverage and Value of Voluntary Retirement Savings," OECD Social, Employment and Migration Working Papers 69, OECD Publishing.
    9. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
    10. Kwang-Yeol Yoo & Alain de Serres, 2004. "Tax Treatment of Private Pension Savings in OECD Countries and the Net Tax Cost Per Unit of Contribution to Tax-Favoured Schemes," OECD Economics Department Working Papers 406, OECD Publishing.
    11. DeMarco, Gustavo & Rofman, Rafael & Whitehouse, Edward, 1998. "Supervising mandatory funded pension systems : issues and challenges," Social Protection and Labor Policy and Technical Notes 20113, The World Bank.
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    Cited by:

    1. Javier Vazquez Grenno, 2010. "Spanish pension system: Population aging and immigration policy," Hacienda Pública Española, IEF, vol. 195(4), pages 37-64, december.
    2. Tânia Santos & Inmaculada Domínguez-Fabián, 2011. "Financial solvency of pension systems in the European Union," EcoMod2011 2916, EcoMod.
    3. Grech, Aaron George, 2010. "Assessing the sustainability of pension reforms in Europe," MPRA Paper 27407, University Library of Munich, Germany.
    4. Luca Agnello & Nikola Altiparmakov & Michal Andrle & Maria Grazia Attinasi & Jan Babecký & Salvador Barrios & John Bluedorn & Vladimir Borgy & Othman Bouabdallah & Andries Brandsma & Adi Brender & Vít, 2016. "Beyond the austerity dispute: new priorities for fiscal policy," Workshop and Conferences 20, Bank of Italy, Economic Research and International Relations Area.
    5. Grech, Aaron George, 2012. "Evaluating the possible impact of pension reforms onfuture living standards in Europe," LSE Research Online Documents on Economics 51296, London School of Economics and Political Science, LSE Library.
    6. Giuseppe Carone & Per Eckefeldt & Luigi Giamboni & Veli Laine & Stéphanie Pamies Sumner, 2016. "Pension Reforms in the EU since the Early 2000's: Achievements and Challenges Ahead," European Economy - Discussion Papers 2015 - 042, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Grech, Aaron George, 2014. "Evaluating the possible impact of pension reforms on elderly poverty in Europe," MPRA Paper 57639, University Library of Munich, Germany.
    8. Gretchen Van Riesen, 2009. "The Pension Tangle: Achieving Greater Uniformity of Pension Legislation and Regulation in Canada," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 294, August.

    More about this item

    Keywords

    reform of public and private pensions; replacement rates; pension wealth; mandatory and voluntary pensions; OECD pension reform challenges;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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