Pensions at a Glance 2025

Mandatory earnings-related pensions

Key results

The second tier of the OECD’s taxonomy of retirement-income provision comprises mandatory or quasi-mandatory earnings-related pensions, covering defined benefit, points and defined contribution schemes. Key parameters and rules of these schemes determine the future value of entitlements.

Generic earnings-related schemes are of three different types governed by different rules of benefit calculation. Defined benefit (DB) schemes typically specify an accrual rate, expressed as a percentage of individual pensionable earnings, at which benefit entitlements build up throughout the career. The higher the contribution rate the higher the accrual rate that can be sustained. Defined benefit schemes can be funded or pay-as-you-go or a combination of both. In points schemes, the pension benefit is equal to the number of points accumulated during the career multiplied by the point value. Points schemes that currently exist in OECD countries are all pay-as-you-go. Defined contribution (DC) schemes are individual account-based schemes that accumulate contributions during the working career to finance retirement. When the accounts accumulate capital in the form of financial assets, these schemes are classified as funded defined contribution (FDC). If schemes are based on notional accounts, then they are referred to as notional defined contribution (NDC) schemes. In both cases, for the modelling of replacement rates in Chapter 4, an annuity divisor is applied to transform financial assets (real or notional) into monthly pensions. Table 3.4 presents future parameters and rules for benefit calculation that will apply to people who enter the labour market in 2024, according to the latest legislation.

Within PAYG DB schemes, accrual rates of at least 2% apply in Colombia, Portugal, Spain and Türkiye. Japan and Korea credit the lowest rates of about 0.5%. In half of DB schemes, the accrual rate is the same irrespective of career length or earnings level. However, in Czechia, Portugal, the United States and for the public scheme in Switzerland, entitlements vary with earnings levels, granting higher accrual rates to lower earners. Accrual rates increase with the length of the contribution history in Greece and Luxembourg. In Hungary, Slovenia and Spain accruals are higher for the first years of coverage. Moreover, in the Swiss occupational plan accrual rates increase with age as do contribution rates.

In Spain and Türkiye, the total accumulated accrual rate is capped at 100% and 90% respectively. In Portugal, at most 40 years of contributions are required, effectively capping the accrual at 92%.

Pensionable earnings measures used to calculate benefits use the entire career earnings in the majority of countries. Portugal, Slovenia and the United States also come close by using the best 40, 35 and 35 years, respectively. Only public pensions in Costa Rica, Spain and France for its main scheme will still be based on a comparatively small fraction of career earnings; final 25, final 25 (increasing to best 27 of the final 29 years of earnings from 2044) and best 25 respectively. In Colombia the most favourable of lifetime or final 10 years is used.

All schemes apply a valorisation rate to past earnings to take account of at least changes in real terms between the time pension rights accrued and the time they are claimed. The most used rate is the growth of average earnings. However, Belgium, Colombia, Costa Rica, Spain and the main scheme in France only revalue past earnings with price inflation, thereby leading to a negative impact of real-wage growth on replacement rates and making the finances of the system more sensitive to real-wage growth (OECD, 2019). Also, Finland, Portugal and the United States revalue earlier years’ earnings with a mix of price and wage inflation, and in Estonia and Türkiye it is a mix of prices and, respectively, wage bill and GDP growth.

For DC plans the cumulative growth of individual accounts is determined by the rates of return on top of new contributions made. These rates of return are financial market returns in FDC schemes and notional interest rates in NDC schemes. The latter are equal to the rate of GDP growth in Italy, wage bill growth in Latvia and a mix of the two in Poland. Norway and Sweden apply earnings growth. One key parameter for DC plans is the contribution rate paid into individual accounts.

Pension schemes in nine countries do not have a ceiling. The highest ceilings apply in Colombia, France and the Slovak Republic, at over 8 times average earnings. The lowest at 0.68 to 0.86 times are in Canada, Israel and Switzerland.

Indexation refers to the growth of pensions in payment, i.e. during retirement. Price indexation is most common. However, eight countries uprate benefits with a mix of price inflation and wage growth, and four countries combine price inflation and GDP or wage bill growth. Sweden indexes pensions based on wage growth minus 1.6%.

The effective accrual rate measures the rate at which benefit entitlements are effectively built for each year of coverage. It thus depends on modelling assumptions and is closely connected to the replacement rates shown in Chapter 4. For DB schemes, it equals the nominal accrual rate after adjusting for all the elements that apply to pensionable earnings i.e. thresholds, valorisation of past earnings, sustainability factors. In FDC and NDC schemes the effective accrual rate is the replacement rate, divided by the number of years of contribution. The replacement rate in this case depends on contribution rates, rates of return and annuity factors.

Based on current legislation, at the average‑wage level, the highest future effective annual accrual rates of 1.9% are in Colombia and Spain. Austria, Italy, Luxembourg, Portugal and Türkiye are also above 1.5%. The lowest rates, below 0.2%, are in the points scheme in Lithuania and the FDC schemes of Norway and Sweden, reflecting low contribution rates.

Further reading

OECD (2019), OECD Reviews of Pension Systems: Portugal, OECD Reviews of Pension Systems, OECD Publishing, Paris, https://doi.org/10.1787/9789264313736-en.

Table 3.4. Future parameters and rules of mandatory earnings-related pensions, latest legislation

At the normal retirement age for a full-career worker who entered the labour market at age 22 in 2024

	Type of scheme	DB schemes	DB, points or NDC schemes			FDC or NDC schemes	Ceiling for pensionable earnings (multiple of average earnings)	Effective accrual rate of a male full-career average earner (% of earnings)
		Nominal accrual rate (% of individual pensionable earnings)	Earnings measure	Valorisation rate	Indexation rate	Total contribution rate (%)
Australia	FDC					12.0	2.51	0.59
Austria	DB	1.78	L	w	p		1.42	1.72
Belgium	DB	1.33	L	p	p		1.20	0.94
Canada	DB	0.83	L	w	p [c]		0.78	0.70
Chile	FDC					16.0	2.76	0.87
Colombia	DB / FDC	2.00 [w]	F10 or L	p	p	14.0	12.90	1.87 / 0.00
Costa Rica	DB / FDC	1.29 [w]	F25	p	p	4.3	None	1.29 / 0.23
Czechia	DB	0.77 [w]	L	w	33%w + 100%p		3.84	0.77
Denmark	FDC (Occ.)					12.0	None	0.84
Estonia	Points		L	w	80%wb + 20%p		None	0.30
Finland	DB	1.50	L	80%w + 20%p	20%w + 80%p		None	1.22
France	DB / points	1.16	B25 / L	p / w	p / p		1.01 / 8.11	0.99 / 0.32
Germany	Points		L	w	w – x		1.43	0.94
Greece	DB / FDC	1.14 [y]	L	p, w	50%p+50%g / p	6.0	4.07 / 4.07	1.14 / 0.4
Hungary	DB	1.21 [y]	L	w	p		None	1.21
Iceland	FDC (Occ.)					15.5	None	0.96
Ireland	None
Israel	FDC					12.5	0.76	0.75
Italy	NDC		L	g	p	33.0	1.83	1.42
Japan	DB	0.55	L	w	p or w [a]		2.27	0.50
Korea	DB	0.47	L	w	p		1.35	0.47
Latvia	NDC / FDC		L	wb	p + 50%wb	14.0 / 6.0	4.74 / none	0.52 / 0.38
Lithuania	Points		L	w	wb		4.43	0.18
Luxembourg	DB	1.57 [y]	L	w	p, w [c]		2.08	1.57
Mexico	FDC					15.0	2.90	0.96
Netherlands	FDC (Occ.)					18.6	None	0.96
New Zealand	None
Norway	NDC / FDC		L	w	average (p,w)	18.1 / 2.0	1.14 / 1.92	0.83 / 0.11
Poland	NDC		L	p, wb, g	p, w [c]	19.5	2.43	0.67
Portugal	DB	2.30 [w]	B40	min(25%w+75%p,p+0.5%)	p, d		None	1.57
Slovak Republic	Points		L	95%w	p		10.31	1.23
Slovenia	DB	1.13 [y]	B35	w, d	20%w + 80%p		2.08	1.13
Spain	DB	2.70 [y]	B27 of F29	p	p		1.42	1.87
Sweden	NDC / FDC / FDC (occ.)		L	w	w – 1.6% [c]	14.9 / 2.3 / 4.5 [w]	1.14 / 1.14 / none	0.88 / 0.16 / 0.28
Switzerland	DB / DB (occ.)	0.63 [w] / 0.68 [a]	L / L	f / r	50%w+50%p / 0%		0.68 / 0.68	0.54 / 0.44
Türkiye	DB	2.00	L	p + 30%g	p		3.17	1.61
United Kingdom	FDC					8.0	0.98	0.48
United States	DB	1.21 [w]	B35	w or p	p		2.39	0.88
Argentina	DB	1.22	F10	none	50%w/50%wb		None	1.11
Brazil	DB	2.47 [y]	L	p	p		1.38	2.06
China	DB / FDC	1.00	L	w	50%w+50%p	8.0	none / 3.00	1.00 / 0.97
India	DB / FDC	1.43	F5	none	p	15.7 [w]	1.42 / 1.42	0.65 / 0.44
Indonesia	DB / FDC	1.00	L	p	p	5.7	1.68 / none	0.77 / 0.47
Saudi Arabia	DB	2.25	F15	none	p		1.21	1.76
South Africa	None

Note: Empty cells indicate that the parameter is not relevant. [a] = varies with age, [c] = valorisation/indexation conditional on financial sustainability, [f/m] = varies by gender, [w] = varies with earnings, [y] = varies with years of service, B = number of best years, F = number of final years, L = lifetime average, d = discretionary valorisation/indexation, f = fixed-rate, g = growth of gross domestic product; p = price inflation, w = growth of average earnings, wb = wage bill growth. Colombia: An average earner does not make contributions to the FDC scheme, hence giving zero as the effective accrual rate for this component. Denmark: typical contribution rate for quasi-mandatory occupational plans. ATP pension only enters the last column. Germany: x depends on changes in both sustainability and contribution factors. Italy: indexation is to price inflation for low pensions and 75% of price inflation for high pensions. Japan: indexation is to earnings growth until age 67 and to price inflation after age 68. Latvia: 50% for careers shorter than 30 years, 60% for careers between 30 and 39 years, 70% for careers between 40 and 44 years, and 80% for careers of at least 45 years. Luxembourg: indexation is to price inflation plus a share of real earnings growth, depending on the financial situation of the pension scheme, assumed to be full wage growth until 2027 and 25% thereafter. Poland: indexation is to price inflation + at least 20% of real average‑earnings growth in the previous year. Portugal: indexation is higher relative to prices for low pensions and vice versa. Indexation rises with higher GDP growth. Spain: The earnings measure is the best 27 years of the 29 years immediately prior to retirement. Switzerland: in the public scheme, ceiling applies to average earnings measure at retirement rather than annual earnings in the contribution years. United States: valorisation with earnings growth to age 60, no adjustment from 60 to 62, valorisation with price inflation from 62 to 67. Accrual rates applied to average earnings measure at retirement rather than annual earnings in the years of contribution. In some countries accrual stops after a certain number of contribution years or when a certain total accrual rate is reached. This is the case in Belgium (45 years), Canada (40 years), Portugal (40 years), Spain (100%), Türkiye (90%) and the United States (35 years). In other countries a maximum pension or a late retirement age may stop accrual too.

Source: See “Country Profiles” available at http://oe.cd/pag.

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