How retirement systems vary, country to country
Retirement systems vary widely from country to country. In China, policymakers are just beginning to expand retirement benefits to everyone. In Australia, people have been compelled for years to save for their own retirements. Italy and Germany are raising retirement ages and cutting benefits.
Here's a look at retirement systems in key nations:
— UNITED STATES:
The United States is struggling to finance its promises to future retirees. Social Security is the core of its system. Social Security payments are financed by a tax on both workers and employers. The payments average $1,269 a month. Two-thirds of retirees rely on Social Security for most of their income. Americans can collect as early as age 62 but don't receive the full benefit unless they wait later to collect — until age 66 for those born from 1943 through 1959 and age 67 for those born after. Many also rely on corporate pensions. But companies have been replacing them with 401(k)-style plans. These plans require employees to save and invest themselves. But many who are eligible for 401(k) or similar plans don't enroll in them, contribute too little or raid their accounts before retirement.
China's population is aging rapidly. That has left a shortage of working-age people to pay into the pension system. For now, the retirement system remains generous for most city dwellers. Urban workers pay 8 percent of their income toward retirement; their employers add 20 percent. The pensions equal about half of pre-retirement income. Men are eligible for pensions at 60, women at 50 to 55. Only about half of adults are covered by the urban pensions or similar pensions that are available to government workers. In 2009, China introduced a pension plan for rural areas. But it's barely begun. And it pays rural retirees an average of just $12 a month. Policymakers are considering raising the retirement age for urban workers. China tightly regulates investing, making it difficult for workers to put money in riskier investments that offer higher returns and the potential to build significant retirement savings. China is reviewing ways to ease investment restrictions.
An aging Japan is struggling to finance the retirement of its baby boom generation. It has a three-part system: Workers receive a flat-rate pension of about 66,000 yen ($657) a month from a fund partially financed by worker contributions. They also receive a second pension based on their earnings, financed entirely by their contributions. And they can contribute to additional plans that are voluntary. They can collect the flat-rate pension after contributing for 25 years; they become eligible for a full benefit after 40 years. The flat-rate and earnings-based pensions combined replace an average of only about 25 percent of pre-retirement income. Many older Japanese, who had lifetime jobs with good benefits, have accumulated hefty savings. But younger workers, who came of age amid a sluggish economy and corporate cutbacks, are struggling to save.
Germany's retirement system is generous for many, but getting less so. The post-World War II economic boom financed comfortable retirements. The system still provides the bulk of income for retired people — about 70 percent as of 2010. Germans can retire with a full pension at 65, though the age is gradually rising. People born after 1964 face a retirement age of 67. The system replaces 58 percent of average take-home pay. The pensions are funded by a payroll tax with no investment assets backing the government's promises — a so-called pay-as-you-go system. Pensions are tied to earnings during a person's working years. But the formula now reduces pension levels as the ratio of retirees to workers rises. There's an additional benefit that serves as a safety net for very low-income retirees. Many people who work for major employers also have company-based pensions.
Older French workers who want to retire early have a good deal: The minimum age for a full pension for most of them is just 62 as long as they've contributed to the system for at least 41.5 years. France has a tax-funded pension and mandatory employer programs. A worker who earned France's median wage receives 60.8 percent of pre-retirement take-home pay. In October, France raised the contribution period to receive a full public pension from 41.5 to 43 years — but only after 2020. By then, most of France's baby boomers will have retired.
Britain's government pension system is designed to protect retirees from misery, not make them comfortable. British retirees receive just 38 percent of their income from government pensions, far less than German and Italian retirees; British retirees get 26 percent from company pensions. Britain has a multi-tier state pension system, funded by a payroll tax in which higher earners pay more. The first tier is a basic state pension. For someone who's contributed for a full 30 years or more, it equals 110.15 pounds ($177.34) a week. It's the same for all retirees regardless of how much they contributed. A so-called second state pension is supposed to reflect an employee's earnings more closely. Complicated? Yes. Pending legislation would create a single-tier state pension.
Brazil is ranked second-best of 20 countries evaluated by the Center for Strategic and International Studies for maintaining retirees' incomes. But it's only No. 18 in its ability to pay for its retirement system over the long term. In the 1980s, Brazil introduced a generous government pension system before it became rich enough to afford one. The system is financed with a payroll tax; higher-paid workers contribute more. Brazilians need contribute for only 15 years to receive full benefits at age 65 (for men) or 60 (or women). Men can retire at 53 if they've contributed to the system for 30 years, women at age 48 if they've contributed for 25 years. For Brazilians who earned average wages, Brazil's pensions replace 97 percent of their old take-home pay, well above a 69 percent average for the Organization for Economic Cooperation and Development. Brazil will strain to pay those pensions as its population ages.
Italy's state pension program used to offer generous benefits, but they've been gradually declining since 1995. Until a 2004 reform, Italians could retire with generous benefits as early as age 57. Austerity measures enacted in response to Italy's debt crisis will raise the retirement age to 66 by 2018. Pensions, along with other programs like unemployment benefits, are funded by taxes. Despite the cutbacks that will reduce pensions for future retirees, Italians still rely mostly on the state pension. There's been discussion of ways to prod people to save more by encouraging or requiring company-based pensions or private savings. Only about a quarter of Italians are covered by a company pension. Italians get 72 percent of their retirement income from the government.
Australia's system is considered a model in ensuring that people save enough for retirement. A 1993 program requires employers to contribute an amount equal to 9.25 percent of a worker's income into a retirement fund. (The required contributions will rise to 12 percent by 2020.) Australians can't withdraw money in their accounts before retirement. Most Australians also receive a government pension financed from general tax revenue. In the Center for Strategic and International Studies' rankings of 20 countries' retirement systems, Australia is ranked fourth-best in ensuring comfortable incomes for its retirees. It is sixth-best in its ability to finance its system.
— SOUTH KOREA:
South Korea's retirement system is stingy and getting stingier. A government program pays benefits depending on average income and years of contributions. Full pensions are available at age 60; the age will rise to 65 by 2033. In 2008, the typical retiree could expect a government pension equal to half of average pre-tax earnings. But that figure is being gradually lowered to 40 percent in 2028. Employees and employers must contribute 4.5 percent of wages each toward retirement. The self-employed can choose to pay up to 9 percent. Companies also offer 401(k)-style pensions, severance packages or individual retirement accounts. Workers can receive both the government and employer plans. But many elderly South Koreans are struggling: They are living longer than they had expected and didn't save enough for old age. Many also counted on their children to care for them in retirement — a system that's breaking down as younger workers prefer to live on their own. The country has the developed world's highest poverty rate among the aged: 45.1 percent, compared with an average 13.5 percent for 30 countries in the Organization for Economic Cooperation and Development.
Denmark offers a basic government pension and a supplementary benefit in which people receive less as their income rises. Government pensions are funded on a pay-as-you-go basis from tax revenue. There's also a government pension based on an individual's contributions at work. Additionally, 90 percent of full-time workers are covered by company pensions. The typical retiree receives nearly 95 percent of average pre-retirement, take-home pay. The poorest pensioners receive an annual payment of 7,800 kroner ($1,400). The retirement age is 65, rising to 67 starting in 2024. After 2025, the retirement age will be indexed to life expectancy to account for longer lifespans.