The indicators of pension entitlements that follow here in and the analysis of pension savings gaps in use the OECD pension models. The methodology and assumptions are common to the analysis of all countries, allowing the design of pension systems to be compared directly. Future entitlements under today’s parameter and rules.

The gross replacement rate shows the level of pensions in retirement relative to earnings when working. For workers with average earnings, the gross replacement rate averages 54% in the 34 OECD countries. But there is significant cross-country variation. At the bottom of the range, Mexico and the United Kingdom offer future replacement rates of less than a third to people starting work today. The Netherlands at the top of the range, offer replacement rates of more than 90%. Other countries with high projected replacement rates are Denmark at 79% and Austria at 77%.

Private pensions play a large and growing role in providing incomes for old age. This is illustrated with calculations of gross pension replacement rates which distinguish the contributions of public and private sectors. The OECD average for replacement rates of an average earner from public schemes alone is 41%, compared with 54% with mandatory private pensions included. When voluntary private pensions, under typical rules, are added, the average replacement rate is 68% for an average earner.

The personal tax system plays an important role in old-age support. Pensioners often do not pay social security contributions. Personal income taxes are progressive and pension entitlements are usually lower than earnings before retirement, so the average tax rate on pension income is typically less than the tax rate on earned income. In addition, most income tax systems give preferential treatment either to pension incomes or to pensioners, by giving additional allowances or credits to older people.

For average earners, the net replacement rate across the OECD averages 66%, which is 11 percentage points higher than the gross replacement rate. This reflects the higher taxes and contributions that people paid on their earnings when working than they pay on their pensions in retirement. Net replacement rates again vary across a large range, from under a third in Mexico to over 100% in the Netherlands for average earners.

The OECD average for net replacement rates of an average earner from public schemes alone is 49%, compared with 64% with mandatory private pensions included. When voluntary private pensions, under typical rules, are added, the average net replacement rate is 79% for an average earner.

Although private pension funds in OECD countries have, on average, now recovered all of the pre-crisis losses the markets are still volatile and negative growth is still not uncommon. However, it is important to bear in mind that private pensions are only a part of the overall retirement-income package: a major part of retirement income is generally not affected by investment risk. In some countries, means-tested pensions protect low-income workers from much investment risk and the tax system can also acts as an automatic stabiliser of retirement incomes.

Pension wealth measures the total value of the lifetime flow of retirement incomes. For average earners, pension wealth for men is 9.3 times annual earnings on average in OECD countries. The figure is higher for women – 10.6 times individual earnings – because of their longer life expectancy.

Net pension wealth, like the equivalent indicator in gross terms, shows the present value of the lifetime flow of pension benefits. But it also takes account of taxes and contribution paid on retirement incomes. Both figures for pension wealth are expressed as a multiple of individual gross earnings.

The change in gross pension shows the level of the pension promise from remaining in employment for an additional year. In half of the OECD countries lower or average earners have a lower incentive to remain in work than higher earners. In contrast there are only eight OECD countries where it is more advantageous for low or middle earners to stay in employment.

The progressivity index is designed to summarise the relationship between pension in retirement and earnings when working in a single number. The results show variation from 100 in pure basic schemes (such as Ireland and New Zealand), through zero in Hungary to a negative result in Sweden (-13), indicating that the overall retirement-income system in Sweden is regressive. The average index across OECD countries is 39. Regional differences are striking, with the index averaging 82 in the Anglophone countries: public pensions are strongly progressive. In Southern European countries, by contrast, it averages 23, indicating a very strong link between earnings and pension benefits.

In some countries, such as Hungary, Italy, the Netherlands and the Slovak Republic, there is a very strong link between pension entitlements and pre-retirement earnings. In contrast, flat-rate benefits in Ireland and New Zealand mean that there is no link between pension and earnings levels, but in Ireland it is linked to duration of contributions.

The indicators so far have shown replacement rates, relative pension levels and pension wealth for people at different levels of earnings. By taking a weighted average of these indicators over the earnings range, the measures presented here show the average for the pension level at the time of retirement and pension wealth, the lifetime value of pension payments.

The retirement-income package is divided into different components using the taxonomy from the indicator of the Architecture of national pension systems above. This framework divides pension systems into two mandatory tiers. The first is a redistributive part, designed to ensure pensioners achieve an absolute minimum standard of living. A savings part forms the second, with the aim of achieving a target income in retirement compared with earnings when working. This indicator, showing the division of national pension systems between these tiers and between public and private provision, again demonstrates substantial differences in national policies.