Although the gross replacement rate is a key indicator of the design of the pension system, the net replacement rate matters more to individuals, as it reflects their disposable income in retirement in comparison to when working. For average earners with a full career, the net replacement rate from mandatory pension schemes at the normal retirement age averages 63.2% across the OECD, 11.2 (p.p.) higher than the average gross replacement rate. This reflects the higher effective tax and social contribution rates that people pay on their earnings than on their pensions in retirement, mostly due to the lower social contributions on pension benefits, the progressivity of tax systems and some tax advantages to pensions. Net replacement rates vary from under 35% in Australia, Ireland and Lithuania to 85% or more in Austria, Greece, Luxembourg, the Netherlands, Portugal, Spain and Türkiye for average‑wage workers. For low earners (with half of average worker earnings), the average net replacement rate across OECD countries is 75.2% while it is 52.9% for high earners (200% of average worker earnings).
Pensions at a Glance 2025
The previous indicator of the “Tax treatment of pensions and pensioners” showed the important role that the personal tax and social security contribution systems play in old-age income support. Pensioners often only pay health contributions and receive preferential treatment under the income tax. Tax expenditures and the progressivity of income taxes coupled with gross replacement rates of less than 100% also mean that pensioners have a lower income tax rate than workers. As a result, net replacement rates are generally higher than gross replacement rates.
For average earners, the net replacement rate across the OECD averages 63% for mandatory schemes, from a low of under 35% in Ireland and Lithuania to a high of 96% in the Netherlands and over 90% in the Portugal and Türkiye (Table 4.4).
On average, for average earners, the net replacement rate is 11 (p.p.) higher than the gross replacement rate (Figure 4.5). The difference is over 25 (p.p.) in Hungary, Slovenia and Türkiye. Belgium, the Netherlands, Portugal and the Slovak Republic are also around 15‑20 (p.p.) higher. In Hungary, the Slovak Republic and Türkiye, pension income is liable for neither taxes nor social security contributions. In Belgium and Portugal, they are much lower due to either higher tax allowances or much lower contribution levels.
For low earners, the effect of taxes and contributions on net replacement rates is slightly more muted than for workers higher up the earnings scale. This is because low-income workers typically pay less in taxes and contributions relative to average earners. In many cases, their retirement incomes are below the level of the standard reliefs in the personal income tax (allowances, credits, etc.). Thus, they are often unable to benefit fully from any additional concessions granted to pensions or pensioners under their personal income tax. The difference between gross and net replacement rates for low earners is 10 (p.p.) on average. Belgium, Portugal, the Slovak Republic and particularly Hungary and Slovenia have much higher replacement rates for low earners on a net basis than in gross terms.
The net replacement rate for workers earning 200% of the average is highest in Türkiye at 105%. The lowest replacement rates for high earners are found in Canada, Estonia, Ireland, Korea, Lithuania, New Zealand and Switzerland where workers earning 200% of the average will receive net pensions that amount to 25% or less of their net earnings when working. In addition to the higher contribution levels in the occupational system for higher earners in Sweden, the net replacement rates are furthermore affected by the fact that pension income and work income are taxed differently and at different rates.
Definition and measurement
The net replacement rate is the net value of the pension entitlement relative to individual net earnings, taking account of personal income taxes and social security contributions paid by workers and pensioners. Otherwise, the definition and measurement of the net replacement rates are the same as for the gross replacement rate. Details of the rules that national tax systems apply to pensioners can be found in the online Country Profiles available at http://oe.cd/pag.
Note: *Low earners in Colombia, New Zealand and Slovenia are at 64%, 61% and 55% of average earnings, respectively, to account for the minimum wage level.
Source: OECD pension models.
Source: OECD pension models.
Source: OECD pension models.