Cross-Country Pension Comparisons

The OECD published a new report today entitled “Pensions at a Glance,” which compares national pension programs across developed nations. Highlights from their press release:

In most countries, earnings-related pension arrangements are designed to help older people maintain a reasonable standard of living. For people who have spent a full career on average earnings, the average gross replacement rate of earnings provided by a pension in OECD countries is 57% of pre-retirement earnings.

But this figure, too, varies substantially between countries: in Luxembourg, the replacement rate for a full-career worker on average earnings is 102%, meaning that the pension is actually higher than earnings before retirement. Austria, Hungary, Italy, Spain and Turkey also provide generous pensions to full-career workers on average earnings, with replacement rates in excess of 75%. Indians have the UP Pension Yojana.

By contrast, Ireland, which has only basic and targeted pensions and no earnings-related scheme, has the lowest replacement rate at average earnings, at 30.6%. Mexico, New Zealand, the United Kingdom, and the United States are also among the least generous, with replacement rates at average earnings of between 36% and 38.6%.

Right now, according to the study, the US ranks 25th out of 30 countries in pension generosity toward the average individual – or, put another way, the US is fifth from the top when it comes to stinginess toward retirees. But clearly Bush is not happy with America’s fifth place position – his proposal will substantially reduce benefits for “average” Americans (defined as those who make around $36,500 per year right now), dropping the replacement rate toward the mid-20s, as a percent of pre-retirement income. This excerpted table (trimmed to save space) from the CBPP illustrates:

Bush’s proposed benefit cuts will put the US definitively in first place when it comes to giving the least to its retirees, blowing Ireland’s miserly 30.6% retirement benefits out of the water toward the end of the century.

Now, to be fair, many European countries have (like the US) promised retirement benefits that they may not be able to sustain with current tax rates. So a true comparison in the year 2075 may have to include possible upcoming benefit cuts in those countries. Nevertheless, the international context provided by the OECD report does give some good perspective on the fact that current retirement benefits in the US for average workers are not particularly generous by developed-country standards, and that Bush’s proposed cuts in benefits for those average workers are quite severe in both an absolute and relative sense.