A number of countries, including the U.S., should reassess their retirement safety nets for retirees that have not contributed enough to provide sufficient income in retirement via national pension systems, also called social security systems, said a new report.
Released Tuesday by the Organization for Economic Cooperation and Development, the report said significant reforms and changes by about half of OECD countries to make their retirement systems more financially sustainable might not be enough to alleviate the risk of poverty in retirement.
An aging population, unemployment rates among younger people, a decline in open-end labor contracts and a rise in temporary and “often precarious jobs” are reducing the continuity of contributions to retirement plans, the OECD said. In some countries, time out of the labor market means a hiatus from the retirement system, resulting in many more participants receiving lower income when they retire.
Across the OECD, minimum social security benefits provide an average 22% of average earnings. Payments range from 6% in Korea, to 40% in New Zealand. However, Chile, Korea, Mexico, Turkey and the U.S. are among OECD countries that “combine relatively high risk of pensioner poverty and low benefits, and should consider increasing the value of safety net payments,” the OECD said.
Another danger is the indexation of first-tier, or state, retirement provisions. While attractive to governments that face budgetary constraints, the OECD report warned that price indexation “also runs the risk of fueling pensioner poverty as safety nets will lose value over time.”
On the positive side, about half of OECD countries have moved to make their retirement systems more affordable, over the past two years. One-third have strengthened safety nets and helped some vulnerable groups of retirees.
“While these are steps in the right direction, there is now a growing risk in some countries that future pensions will not be sufficient,” said Angel Gurria, OECD secretary-general, in a statement accompanying the report. “The long-term challenge is to design policies today that are flexible enough to adapt to the uncertainties of tomorrow’s world of work, while ensuring adequate living standards for retirees.”
Retirement ages also have risen, with 67 becoming the new 65 in many countries. The Czech Republic, Denmark, Ireland, Italy and the U.K. are moving toward age 70.
The report studied the national retirement systems of the 34 OECD countries, as well as Argentina, Brazil, China, India, Indonesia, Russian, Saudi Arabia and South Africa.
The report, “Pensions at a Glance 2015,” is available on the OECD’s website.