Retirement-income regimes are diverse and often involve a number of different programmes. The taxonomy of pensions used here consists of two mandatory “tiers”; the first generates retirement income independent of past earnings level. The second covers earnings-related components. Voluntary provision, be it personal or employer-provided, comprises the third tier.
Pensions at a Glance 2025
OECD and G20 Indicators
Figure 3.1 is based on the role of each part of the system. The first tier comprises programmes offering the first layer of social protection in old age, and for which past earnings are irrelevant in the calculation of retirement income. Such schemes often target some minimum standards of living in retirement. Mandatory earnings-related components (second tier) contribute to smoothing consumption, and therefore standards of living, between working life and retirement. Pensions at a Glance focuses mainly on these mandatory components, although information is also provided on some widespread voluntary private schemes (third tier, see Chapter 4).
Table 3.1 shows the architecture of pension systems in OECD countries based on the rules that determine eligibility and benefit levels while categorising mandatory earnings-related pensions as public or private in accordance with national accounts. Panel A describes the latest legislation applying to future retirees while Panel B shows where those rules have changed compared to current retirees.
Basic pensions can take two different forms: a residence‑based benefit or a benefit that is only available to those who contributed during their career (i.e. contribution-based). The level of the benefit may vary with the number of residence or contribution years but is independent of earnings levels during the career. Eight OECD countries have a residence‑based basic pension for future retirees while Norway is replacing it with a targeted scheme that involves a means test. Ten OECD countries feature a contribution-based basic pension.
Eligibility for targeted plans requires meeting some residence criteria. In these plans, the value of the benefit depends on income from other sources and possibly also assets. Hence, poorer pensioners receive higher benefits than better-off retirees. All countries have general safety nets of this type. However, countries are only marked in Table 3.1 if the benefit is payable to those having had a full career at 30% of average earnings. This holds for ten OECD countries, both currently and in the future.
Minimum contributory pensions can refer to either the minimum of a specific contributory scheme, or to all schemes combined and are currently found in 19 OECD countries. Chile and Italy are phasing them out for future retirees. In most countries, the value of entitlements only takes account of pensions rather than testing for other income.
There are three kinds of second-tier pension schemes, defined benefit, points or defined contribution. For future retirees, public pay-as-you-go schemes follow a defined benefit (DB) format in 19 OECD countries with pension’s dependent on the number of years of contributions and individual pensionable earnings. These countries use accrual rates within the DB formula. Five countries use points schemes, where each year gives entitlement to points based on the level of contribution: French occupational plans managed by social partners under public supervision and the Estonian, German, Lithuanian and Slovak public schemes. At retirement, the sum of pension points is multiplied by the point value to convert them into a pension payment. France has both a mandatory DB and points scheme.
In another seven countries, DB schemes apply to current retirees but have been or will be closed to new workers (Table 3.1 Panel B). Private occupational DB schemes are currently mandatory or quasi-mandatory (see Chapter 4 for definition) in two OECD countries, Switzerland and the Netherlands, respectively. However, in the Netherlands, all new pension rights/entitlements must be built up in defined contribution (DC) pensions from 2028 onwards. Moreover, most pension funds (but not all) will also convert the already existing rights/entitlements into defined contribution (DC) pensions by 2028 at the latest.
Defined contribution schemes can follow one of two paths, either being funded or notional (pay-as-you-go). In these schemes, contributions flow into an individual account. Funded defined contribution (FDC) plans are compulsory for future retirees in 11 OECD countries. The contributions are invested in financial assets and the OECD modelling converts the resulting pension pot into a monthly pension at retirement. Five of these countries, Denmark, Iceland, the Netherlands, Sweden and the United Kingdom, also have quasi-mandatory, occupational FDC schemes in addition to either compulsory earnings-related public plans or basic pensions.
The notional defined contribution (NDC) schemes are at the core of the pension system in five OECD countries (Italy, Latvia, Norway, Poland and Sweden). In addition, the supplementary component of the pension system in Greece is also NDC for current retirees but will be FDC for future retirees. NDC schemes are pay-as-you-go public. Individual notional accounts apply a notional rate of return to contributions made, mimicking FDC plans. The accounts are “notional” in that the balances exist only on the books of the managing institution. At retirement, the accumulated notional capital is converted into a monthly pension using a formula based on life expectancy or mortality rates, indexation rules and discount rates.
Only Ireland and New Zealand in the OECD do not have mandatory second-tier pensions.
Further reading
OECD (2019), “Will future pensioners work for longer and retire on less?”, Policy brief on pensions, OECD, Paris, https://www.oecd.org/en/publications/will-future-pensioners-work-for-longer-and-retire-on-less_0fa49b9b-en.html.
Note: A tick for the column “Targeted” is only shown if a full-career worker at 30% of the average wage is eligible. [q] = Quasi-mandatory scheme based on collective agreements with very high coverage rate, see Chapter 8. DB = defined benefit, FDC = funded defined contribution, NDC = notional defined contribution. In Canada, the basic pension (OAS) is income‑tested but only through the tax system (“claw back”). The contribution-based basic pension in Israel is a 2% top-up (total maximum 50%) on the residence‑based basic pension for each contribution year beyond 10 years. In the Netherlands workers entering in 2024 would normally be in a quasi-mandatory private DB scheme, but these will be largely converted to FDC by 2028. In Mexico, the government pays a transfer to the individual private FDC account of a contributing employee every month. In Switzerland, the government sets the contribution rate, the minimum rate of return or/and the annuity rate at which the accumulation is converted into a pension for mandatory occupational plans. These schemes are therefore implicitly defined benefit.
Source: See “Country Profiles” available at http://oe.cd/pag.