1 Funded Pensions Pension Reform in the European Union Organised by Cicero Foundation Paris, 10-11 May 2007 Pablo Antolin Private Pension Unit, OECD
1 Funded Pensions Pension Reform in the European Union Organised by Cicero Foundation Paris, 10-11 May 2007 Pablo Antolin Private Pension Unit, OECD.
Mar 27, 2015
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1
Funded Pensions
Pension Reform in the European UnionOrganised by Cicero Foundation
Paris, 10-11 May 2007
Pablo AntolinPrivate Pension Unit, OECD
2
The OECD Private Pension Unit
Part of the core mission of the Private Pensions Unit is to monitor and examine how funded pension systems contribute to delivering adequate retirement income and how they manage the risks involved.
Main issues:– Adequacy of income at retirement– Risk management
3
Challenges facing funded pensions
Broadening coverage.
Managing risks efficiently.
Improve governance.
4
Managing risks efficiently
Which risks to bear individually and which collectively? Which institutions are best for managing each type of risk? How best to manage risks (diversify, hedge, insure)?
The OECD has launched a project on assessing the impact of longevity, investment, interest rate and
inflation risks on funded pensions
The OECD has also lunched a project with the World Bank on pension fund performance
5
Improve governance
The OECD has produced guidelines on Governance, adopted by the OECD Council on 28 April 2005
(http://www.oecd.org/dataoecd/18/52/34799965.pdf)
(http://www.oecd.org/daf/pensions)
6
Broadening coverage
The OECD has launched a study with the support of the EC to better assess coverage and benefits by age, income and labour market status.
This presentation focuses on the coverage of funded pensions.
7
Structure of the presentation
1. What is the policy relevance of examining the coverage of funded pensions?
2. The challenges posed by the data available to estimate coverage
3. Some preliminary results
8
What is the policy relevance?
Recommendation (Maintaining Prosperity): diversify and broaden the sources of retirement income.
PAYG financed pension plans may not provide enough retirement income, people will need to have additional savings in funded pensions.
Funded pensions are less exposed to the impact of ageing populations that PAYG-financed pensions.
9
Definition of coverage
The number of people enrolled in funded pension plans as a share of the employed population.
Mandatory pensions Replacement rates– PAYG-financed (public pensions)– Funded (the Netherlands)
Voluntary funded pensions people enrolled in these plans
10
Gross replacement rates: PAYG
0
10
20
30
40
50
60
70
80
90
100M
exi
co
Ice
lan
d
Au
str
alia
Slo
vak
R.
Po
lan
d
De
nm
ark UK
Ne
the
rla
nd
s
Ire
lan
d
Ja
pa
n
Sw
itze
rla
nd
Ne
w Z
ea
lan
d
Ge
rman
y
Be
lgiu
m
US
A
Ca
nad
a
Sw
ed
en
Cze
ch
R.
Hu
ng
ary
Fra
nc
e
Po
rtu
ga
l
No
rwa
y
Fin
lan
d
Ko
rea
Ital
y
Tu
rke
y
Au
str
ia
Sp
ain
Lu
xe
mb
ou
rg
Gre
ec
e
Source: OECD, Pensions at a Glance
11
Gross replacement rates: Mandatory Funded Pensions
0
10
20
30
40
50
60
70
80
90
100M
exi
co
Ice
lan
d
Au
str
alia
Slo
vak
R.
Po
lan
d
De
nm
ark UK
Ne
the
rla
nd
s
Ire
lan
d
Ja
pa
n
Sw
itze
rla
nd
Ne
w Z
ea
lan
d
Ge
rman
y
Be
lgiu
m
US
A
Ca
nad
a
Sw
ed
en
Cze
ch
R.
Hu
ng
ary
Fra
nc
e
Po
rtu
ga
l
No
rwa
y
Fin
lan
d
Ko
rea
Ital
y
Tu
rke
y
Au
str
ia
Sp
ain
Lu
xe
mb
ou
rg
Gre
ec
e
Source: OECD, Pensions at a Glance
12
Gross replacement rates: Mandatory plans
0
10
20
30
40
50
60
70
80
90
100M
exi
co
Ice
lan
d
Au
str
alia
Slo
vak
R.
Po
lan
d
De
nm
ark UK
Ne
the
rla
nd
s
Ire
lan
d
Ja
pa
n
Sw
itze
rla
nd
Ne
w Z
ea
lan
d
Ge
rman
y
Be
lgiu
m
US
A
Ca
nad
a
Sw
ed
en
Cze
ch
R.
Hu
ng
ary
Fra
nc
e
Po
rtu
ga
l
No
rwa
y
Fin
lan
d
Ko
rea
Ital
y
Tu
rke
y
Au
str
ia
Sp
ain
Lu
xe
mb
ou
rg
Gre
ec
e
Source: OECD, Pensions at a Glance
13
Challenges posed by the data
Sources of data to calculate coverage on funded pensions:
– Administrative data
– Household survey data
14
Administrative data
Data from pension funds
Suffer problem of double counting– People enrolled in more than one pension plan:
occupational (401K USA) & personal (IRA USA).– Deferred members in occupational plans
15
Household survey data
People are interviewed directly
However, the type of questions are not always suitable– Variables indicating whether individuals receive income
from funded pension plans– Variables indicating participation, enrolment,
contributing or having assets in funded pensions.
The design of several surveys on retirement issues prevents estimating coverage
16
Some preliminary results
1. Coverage in occupational plans is larger than in personal plans
2. Coverage increases with age and with income
3. Full-time workers are more likely to be enrolled in funded pension plans than part-time workers
4. Coverage is much lower when considering the working age population.
17
TotalOccupational
plansPersonal
plansAustralia (2002) 75.0 64.6 27.8Canada (2004) 39.0 49.6
Germany1 67.9 9.5Ireland (2005Q4) 55.0 42.9 14.9United Kingdom (2004) 59.1 47.1 18.9United States (2004) 56.4 44.4 34.6
Table People participating in funded pension plans, selected OECD countries
(percentage of total employment)
Source : OECD calculations from the survey on Household, Income and Labour Dynamics in Australia (HILDA), the Canadian Survey of Labour and Income Dynamics (SLID), the German Socio-Economic Panel (GSOEP), the Irish Quarterly National Household Survey (QNHS), the British Household Panel (BHPS), and the United States Panel Study of Income Dynamics (PSID).
Notes: 1. The total includes life insurance an pension plans for the year 2002, while the number on occupational plans is the Riester pensions as of 2004.
18
Coverage in funded pensions by AGEC
an
ad
a
Ca
na
da
Ca
na
da
Ca
na
da
Ca
na
da
Ge
rma
ny
Ge
rma
ny
Ge
rma
ny
Ge
rma
ny
Ge
rma
ny
Ire
lan
d
Ire
lan
d
Ire
lan
d
Ire
lan
d
Ire
lan
d
Un
ite
d K
ing
do
m
Un
ite
d K
ing
do
m
Un
ite
d K
ing
do
m
Un
ite
d K
ing
do
m
Un
ite
d K
ing
do
m
Un
ite
d S
tate
s
Un
ite
d S
tate
s
Un
ite
d S
tate
s
Un
ite
d S
tate
s
Un
ite
d S
tate
s
0
10
20
30
40
50
60
70
8020-2
4
25-3
4
35-4
4
45-5
4
55-6
4
Source: OECD, Private Pension Unit
19
Coverage in funded pensions by INCOMEC
anad
a
Can
ada
Can
ada C
anad
a
Can
ada
Can
ada
Can
ada
Can
ada
Can
ada
Can
ada
Ger
man
y
Ger
man
y
Ger
man
y
Ger
man
y
Ger
man
y
Ger
man
y
Ger
man
y
Ger
man
y
Ger
man
y
Ger
man
y
Irel
and
Irel
and
Irel
and
Irel
and Irel
and
Irel
and
Irel
and Irel
and
Irel
and
Irel
and
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Kin
gd
om
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
Un
ited
Sta
tes
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10Income decilesSource: OECD, Private Pension Unit
20
Coverage in funded pensions by LMK Status
GermanyUnited Kingdom
United States
Part-time
Full-time
Part-time
Full-time
Part-time
Full-time
0
10
20
30
40
50
60
70
80
Source: OECD, Private Pension Unit
21
Summing up
It is important to examine the coverage in voluntary funded pensions in order to assess their complementary role to mandatory plans and to gauge the diversification of income at retirement.
Coverage in voluntary funded pension plans is non-negligible but it could be extended.
Coverage increase with age and with income.
22
Future work
Assess policy options to increase coverage:– Should it be increased? Yes for young and lower
income people
Is compulsion an option? UK and New Zealand have just introduced compulsion.
Assess replacement rates from voluntary funded pension plans.
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