(Reuters) - The world’s rich nations face a double-whammy, with ageing populations meaning more retirees — just as low and negative interest rates make it harder for pension funds to secure the investment returns needed to fill up their coffers.
Pensions typically have three pillars: a basic state payout designed to prevent people falling into poverty once they stop work; a larger slice related to lifetime earnings; and voluntary top-ups for those who can afford them.
How they are organised and the level of private sector involvement differs markedly by country. Here is a brief overview of six large pension systems.
NETHERLANDS - Dutch workers and employers pay into private pension funds that effectively promise to finance a final pension at a specific level. This is an increasingly rare example of a “defined benefit” system. It costs a lot to fund but it is extremely generous: together with their state pensions, many Dutch workers enjoy the same income they had while working when they retire.
FRANCE - France has occupational pensions that are operated by the state. Workers accumulate pension “points” based on their earnings each year. Final pensions tend to be not as generous as those in the Netherlands but compare well internationally, replacing 75% of pre-retirement income. But the system is running a growing deficit which the government-appointed COR advisory body estimates will hit 0.4% of GDP by 2022. President Emmanuel Macron is the latest in a long line of French leaders pushing for reform.
GERMANY - the state pension is calculated by the number of years worked, age and income, with many Germans choosing to top that up with private or company pensions. Even then, the average earner can only expect to receive a pension worth 50.6% of net income on retirement, compared to an OECD average of around 63%. Due to an ageing population, German pension funding is set to become even more strained in years ahead.
UNITED KINGDOM - the mandatory state pension in the UK only amounts to 29% of the net income of a full-career average earner - the lowest level of any rich country. Spending on state pensions in UK has risen from 3.9% of GDP in the 1985/86 tax year to 4.6% in 2016/17, lower than the OECD average of 8.2%. Although the state pension will increase in coming years, UK retirees will continue to rely on private and occupational schemes, with many pensioners facing poverty.
UNITED STATES - the mandatory component of the U.S. system adds up to 49% of the net income of the average earner, meaning that pensioners also rely to a great extent on private schemes. While population ageing is less of an issue than elsewhere, poverty rates for older people are higher, with 21% of over 65s living in income poverty compared to an OECD average of 12.5%.
DENMARK - aside from offering a small basic pension, the Danish system is based on occupational schemes run by the giant ATP fund. Average earners can expect 86% of their net income in pensions.
JAPAN - Japan’s system, under strain due to a high average life expectancy and low birth rates, relies on a mix of state pension and employer-run pension funds. The Japan Government Pension Investment Fund, which supplements state pensions, is the world’s largest, with $1.5 trillion in assets. Workers on average can expect to receive 40% of their last wage in retirement.
Compiled by Mark John; Editing by Alexander Smith