Policy Brief: Closing the Pensions Gap: The Role of Private Pensions

Have you chosen the best pension scheme for you? And how can you be sure it will provide a secure income when you actually retire? Pension reform has been a key issue for governments in recent years as they grappled with the challenge of ageing populations or unsustainably generous public pension systems. Raising retirement ages and keeping older workers in jobs is only part of the solution – the bottom line is that as people are living longer, they will have to save more during their working years to ensure financial security in retirement. Private pensions play an important and growing role in providing for old age in OECD countries.

Three kinds of policy have increased the role of private pensions. In 11 OECD countries, mandatory private pensions operate as a substitute for part of the public pension provision. Two other countries have added mandatory private pension saving on top of existing public plans. And many countries have scaled back their public pensions, leaving a greater role for voluntary, private savings.

Voluntary occupational pension plans have long had broad coverage in English-speaking OECD countries such as Canada, Ireland, the United Kingdom and the United States, where they currently reach 40% or more of employees. Belgium, Germany, Japan and Norway also achieve this degree of coverage. At the other end of the spectrum, 10% or fewer workers are covered by voluntary, occupational, private pensions in Finland, France, Italy, Portugal and Spain.

In nearly all OECD countries today’s workers will have to do more on their own to prepare for tomorrow’s retirement, even if they save throughout their entire career. If young workers miss out on the first 10 or 15 years of their career because of other demands on their budget, reaching a sufficient pension level will become even more difficult.

This Policy Brief looks at how the pension landscape is changing, and how voluntary private pensions can contribute to ensuring financial security in retirement.