Comparison of Pensions from Germany, Britain, The Netherlands, Italy, Switzerland and Poland

In Canada we have a fairly good pensions system, so today I want to take a look at the work done by  Prof. Dr. Barbara Riedmüller - Freie Universität Berlin - Otto-Suhr-Institut für Politikwissenschaft - FB Politik- und Sozialwiss and her comparison of pensions in a number of European countries, so we as North Americans can see what European countries are doing to help seniors.

How do Europeans see Retirement

According to pan-European research conducted by Allianz and Allianz Global Investors, many 50 to 70 year olds are uncertain if they can maintain their current standard of living in retirement. Half of the respondents are not certain whether they can keep their living standards when retired; among the younger segment of the sample the group is even larger.

The study looked at retirement finance of 1,402 respondents, aged 50-70 years, living across seven European countries: Austria, France, Germany, Italy, Netherlands, Switzerland and the United Kingdom (UK). It found that half are uncertain if they can maintain their standard of living in retirement with many needing to build additional savings to maintain their existing standard of living.

The younger respondents tended to have an altogether more pessimistic outlook. This group were particularly concerned about maintaining their standard of living due to the consequences of pension reforms and the impact of the financial crisis on their financial and pension wealth. Only 40% of 50-to-54-year-olds think they will have the same standard of living in retirement. In contrast, 53% of those aged 60-70 are optimistic or already enjoy a relatively comfortable standard of living.

Inflation is cited as the biggest financial risk in retirement in all countries (except Austria). In Germany and UK this is particularly apparent with 60% of Germans and 65% of Britain's citing inflation as the greatest financial concern to potentially impact their pension. However, when tested on their understanding of the effects of inflation, respondents in the UK and the Netherlands tended to overestimate and Austrians tended to underestimate its impact. French, German and Swiss respondents were most realistic about the effects of inflation.

Despite some people misinterpreting the risk that inflation poses, the research showed the majority of 50+ respondents feel they are well informed about financial matters and use a wide variety of information sources. However, while there is a wealth of information available, what matters to pension savers is its usefulness so that investors can both understand it and know how to act in response to it.

There are differences between countries: Elderly in Switzerland and the Netherlands are more optimistic which might be due to the countries’ pension systems with (quasi) mandatory occupational plans.

Nearly two thirds of the respondents said they are satisfied with their retirement planning, only 8% said to be dissatisfied, Swiss respondents are the most satisfied at 81%, with only 2% "dissatisfied"). The overall level of satisfaction with retirement planning is significantly lower in France (46% "satisfied" and 11% "dissatisfied") and Italy (54% "satisfied" and 14% "dissatisfied").

The survey also reveals substantial national differences with regard to the preferred payout method upon entering retirement: Half of Swiss respondents prefer life-long monthly or annual payments compared to only one quarter to one third in the other countries. Austrian and German prefer by far one-off lump sums (40% and 37% of the respective respondents) other the 50+ generation in other countries.

UK respondents stand out when it comes to investment decision making. Nearly half of the respondents from the UK said that they make their own investment decisions without the assistance of an investment professional or adviser, Only Dutch respondents with 42% are nearly as self-directed in their decision making. In Switzerland the share of respondents not seeking external advice is lowest with 23%.

The 50+ generation in the seven European countries is relatively autonomous in financial planning. They largely save and invest without professional advice or only include an advisor for special needs. The main issue for not using financial advisors is trust

Preferences for pay-outs of financial wealth are split between regular payments and lump-sum disposal. In addition to regulation requirements of the countries’ pension system, the results are also dependent on financial obligations in retirement. Swiss and Dutch interviewees prefer regular payments, which might be related to their obligation of paying off mortgages.


Dr Renate Finke, senior economist in the International Pensions unit at Allianz and author of the study, said: "Retirement planning is crucial to ensure ease of living in later life, but many of those surveyed admitted to making mistakes in their approach, with one third of respondents saying they started planning too late and one in four highlighting that they did not save enough. "

Nick Smith, head of European Retail Sales added: "Pension savers face an uncertain landscape including inflation risk, volatility and the challenges posed by reform processes. These are forcing people to adapt to changing situations. People saving for pensions need to look at what lessons can be learned from the 50+ generation, especially as the last decade has shown that it is a difficult task to factor in the various investment risks."

Phased retirement and ageing workforces – following the Nordics

The following was posted  on June 4, 2013, by Aegon Global Pensions  (Aegon Global Pensions is part of Aegon, an international life insurance, pension and investment company with more than 40 million customers and 25,000 employees) and shows that there are different approaches to dealing with Retirement in other countries.

We take a closer look at Finland and Norway to see how these countries are dealing with demographic change and trying to make the most of their ageing populations.

Within ten years, the number of people aged over 60 will number more than 1 billion. At the same time, the rate of growth of 'working age' populations is now declining around the world, with Europe's working-age population already starting to shrink. These changes will necessitate significant changes. And one of the simplest, and probably fairest, solutions is to increase the number of older people in work. Over the past decade, both Finland and Norway have undertaken action to address this issue.

The Finnish approach
The Finnish National Programme on Ageing Workers (FINPAW) aimed to address exactly the same issues that companies across Europe and beyond are now facing today. The programme focused on helping ageing workers to perform their work better and, at the same time, on promoting more favourable attitudes at companies to employing older workers. 

By addressing the obstructions to employing older workers and by providing positive solutions to enable and encourage the employment of older workers, the FINPAW programme prepared the way for the Finnish 2005 pension reform that delayed the age of retirement and adjusted the pension system to increasing longevity rates.

Although the age of retirement in Finland is presently set at 65, it is now possible to defer receipt of pension past this age. It is also possible to work and receive a pension at the same time (while accruing extra pension) until the age of 68.

Flexible retirement in Norway
Norway has also followed a similar path. Since the early 1980s, the workforce participation of older workers in Norway started to decline, with employment participation rates of 64-66 year-old men falling from 66% to 40% from 1980 to 1997. It was clear that Norway, like Finland was losing prematurely an increasingly valuable part of its workforce. At the same time, it was also apparent that it would become more and more difficult to pay for the growing number of longer-lived retirees.

Norway introduced the Flexible Retirement Act (Ny Fleksibel Alderspensjon) enabling the flexible retirement of workers between the ages of 62 and 75 (with the retirement age for public pensions presently set at 67). Norwegians can – and do – continue working past the age of 67 and defer their pension, or continue to work while receiving their pension. In addition, the Norwegian retirement system is now automatically adjusted to accommodate future increases in longevity. Workers can then choose either to work longer or to receive a lower pension in retirement.

Read more in the full article  here (4 pages)

Retirement news around the world

From time to time I get behind in my reading about retirement issues from around the world and as I am recovering from Knee Replacement Surgery at this time I fell behind. So I thought I would share some of the news I have collected on this topic with you. Time for Hong Kong to move on retirement plan South China Morning Post It involved more than 1,500 married or co-habiting women aged 15 to 49 and more than 1,000 partners. To put the results into a future context, Professor Paul Yip Siu-fat, chairman of the association's research sub-committee, said: "Sixty per cent of ... FNC members to debate work after retirement gulfnews.com Abu Dhabi: The Federal National Council's (FNC) session on Tuesday will see two members urging the government on two main issues — encourage men to work after pension age and allow earlyretirement of Emirati women. Hamad Al Rahoumi, an FNC ... Seize the day on the CPP Toronto Star Now we have Pooled Retirement Pension Plans (PRPPs) being touted by federal Finance Minister Jim Flaherty and special interest groups such as the Canadian Federation for Independent Business (CFIB). Setting up a PRPP is completely voluntary and a ...

Texas makes teachers' pensions less reliant on markets Reuters Those three sources are expected to add some $600 million to the pension fund over the first two years, according to state documents. The last time the state passed a cost-of-living increase forretired teachers was in 2001. Under the plan passed ...

Understanding pension plans Jamaica Gleaner In Jamaica, pension plans and retirement schemes are usually tax exempt once they are approved under the Income Tax and Pensions acts. The main benefit provided by a pension plan orretirement scheme is a pension income to the member and his or her ...

Corrupt civil servants may be stripped of pensions: minister China Post The ministry stated that nearly NT$1.3 billion in pension funds was handed out to 127 retired civil servants over the past 13 years after they were charged with corruption. Chang said that after amendments are made to the Civil Servant Retirement Act ...

Crisis in Greece Caused the Retirement of 40000 Officials Prensa Latina More than 40,000 officials retired since the beginning of the crisis, which has caused an increase of the expenses of retirement pensions, according to statistics given today to the Parliament by the Finance vice Minister, Jristos Staikuras. Greece ...

CalPERS' Dear, CalSTRS' Sheehan wed, form a pension power couple Pensions & Investments In fact, many in the Sacramento-based $265.5 billion California Public Employees' RetirementSystem and West-Sacramento-based $163.7 billion California State Teachers' Retirement System organizations don't even know the couple recently tied the knot.

Start Saving For Retirement When You're Young CBS Local BOSTON (CBS) – The reality is that you are responsible for your own retirement savings. Fewer employers are offering pensions to employees. Waiting to start to save until you are 40 is a big financial mistake. The key years for saving have passed you by.

Santa Clara County's different pension path San Jose Mercury News The state's retirement system is raising annual rates on its plans 50 percent in 2016 to deal withpension debt, which it now reports has grown to more than $1.5 billion for the county. Gary Graves, the county's chief operating officer, said what ...

Pensions, benefits under heavy fire StarPhoenix As a result, employers are facing a talent gap, escalating health care costs, retirement risk and waning employee engagement, said Ted Singeris, president of human resources firm Mercer Canada. "Thirty per cent of Canadian businesses say they face a ... See all stories on this topic »

Mandatory Pension Savings: Should Employers And Employees Be Forced To ... Investopedia The fact remains that those currently approaching state pension age could experience a significant fall in their standard of living during the final seven years of retirement, while also finding themselves in a position where they may be unable to ... See all stories on this topic »

A 'third way' between annuities and drawdown Telegraph.co.uk Retirement brings a horrible dilemma for many people: do they settle for the dismal annuity rates currently on offer, or risk running out of money in the future if they choose an income drawdown plan? A third option could offer the best of both worlds ...

How they do it elsewhere (part two)

This is the second part of the article on how the United States compares to other countries when we look at pensions.

Other countries’ systems offer a variety of contrasts:

¶ In France, the retirement age is 60, rising to 62 in 2017. In Britain, it is 67, with some calling that callously high. (Americans born from 1943 to 1959 qualify for full retirement benefits at age 66, and those born in 1960 or later qualify at 67, although people can begin receiving reduced retirement benefits at age 62.)

¶ In Chile, when women give birth, the government makes a special bonus contribution into their 401(k)-type plan to compensate for the months away from their job when they would not be contributing to those plans.

¶ In Sweden, if the nation’s overall social security financing worsens from one year to the next, that country’s fiscal guardians — to prevent huge, unfunded liabilities — set a slightly lower annual retirement benefit for all who reach retirement age that year (remaining unchanged until they die). And if Sweden’s social security finances improve the following year, there is a recalculation, and those who reach retirement age the next year will receive slightly higher benefits throughout retirement.

¶ In Britain, when young workers first sign up for a 401(k)-type plan, the default option in the government’s main new savings plan has them investing mainly in bonds — while in the United States young workers are advised to invest mainly in stocks.

“In the U.K., they say first-time savers are very sensitive to losing money early on, so they put them in bond funds so they’ll have positive returns,” said David C. John, an economist at the AARP’s Public Policy Institute. “As time goes on, they’ll be moved more into equities.”

¶ In the Netherlands, if a company is deemed unable to finance its long-term pension obligations, the central bank can order reduced benefits for current and future retirees to help keep the company afloat. United States law bars companies from reducing pension benefits they have contractually agreed to.

“We took drastic action to get these plans back into a safety zone,” Mr. Smorenberg, the Dutch pension consultant, said.

¶ Singapore requires employees to contribute 20 percent of their pay and employers 16 percent toward a savings fund for retirement, health care and housing. The government guarantees a 2.5 annual return. Despite the high percentage contributed, many Singaporeans end up without enough money for retirement because they withdraw large sums to buy houses.

Despite such disparate strategies, many countries have similar worries. “Every country is worried about workers saving enough and about increasing longevity,” Professor Ghilarducci said. “Every country is worried about investing retirement funds correctly, and every country wants to minimize risks to the taxpayer so there aren’t large, unknown bills in the future.”

In 1986, when Australia’s social security program provided average retirement benefits of just one-third of preretirement pay, Parliament, pushed by labor unions, began requiring employers to contribute 3 percent of employee earnings into a 401(k)-like fund. When that still left many Australians near poverty in retirement, legislators increased the contribution to 9 percent.

Alan Matheson, 75, a retired social worker and minister who lives near Melbourne, said the Australian system had been good to him and his wife, Barbara, 69, a retired nurse. Both receive social security benefits while drawing from their retirement savings. “The system works well if you own a house,” he said. “But if you don’t own your own house or if you’re single, things will be more difficult for you.”

He said Australians backed the plan to raise retirement contributions to 9 percent and then 12 percent because “there’s a widespread acceptance by the population that with the aging of the population, the government is not going to be able to pay its Age Pension,” the Australian name for the social security system.

Australian workers have several investment options, including investment funds set up by companies and unions, and “retail” funds, much like mutual funds. Experts estimated that an Australian worker who contributes for 30 years into such a fund will have retirement income equal to 70 percent of preretirement pay — the percentage that many experts recommend.

“Before compulsion we found that most people didn’t save enough for retirement,” said Ian Silk, chief executive of AustralianSuper, a multi-employer pension fund. He called the mandate “the single most important feature of the Australian system.”

Dana M. Muir, a pension expert at the University of Michigan, opposes a compulsory plan like Australia’s, but she said the United States should borrow one aspect of the Australian system: no legal liability if a company makes imprudent decisions in setting up a 401(k)-type plan. The risk of legal liability, Professor Muir said, is a big reason many American businesses decide not to set up 401(k) plans — and a major reason the American participation rate is so low.

Although Australia’s plan is praised, experts say it has one major flaw. It does not provide an annuity option for most retirees, meaning many run the risk of emptying out their retirement fund long before they die.

In 2007, New Zealand created the world’s first nationwide, government-sponsored savings plan that automatically enrolls workers, while giving them the option not to participate.

The“KiwiSaver” plan — built alongside the basic social security-type system — gives employees the option of contributing 3, 4 or 8 percent of their pay, with employers required to contribute 3 percent. Workers choose which investment funds to put KiwiSaver money in, and those who do not choose are steered into six conservatively invested funds.

To encourage participation, the government provides a $1,000 tax-free “kick-start” contribution for each new participant upon enrollment, as well as a housing down payment of up to $5,000 after someone has participated in the program for three years.

The government determines investment offerings, but there are not dozens, as in the United States. “If you look at the U.S. experience,” said Mr. John of the AARP, “having tons of investment alternatives drives some people away from participating.”

Chile reformed its retirement system during the dictatorship of Gen. Augusto Pinochet. In 1981, he largely replaced the country’s traditional social security-type plan with a 401(k)-type plan for everyone who entered the work force from that year onward.

Under the plan, 10 percent of each employee’s salary was automatically deposited into a 401(k)-type retirement fund, with workers having a choice of investment options. Today more than 90 percent of Chilean workers are in the system, which resembles, but goes further than, the partial Social Security privatization that President George W. Bush pushed unsuccessfully.

Patricio Navia, a professor of political science at the Diego Portales University in Chile, said the system was effective in getting most Chileans to save significant amounts for retirement. But he said there were shortcomings. The number of major investment funds has shrunk to six, from 15, leaving limited competition that has resulted in high fees.

And those unemployed for long stretches or working in the informal economy often did not save enough for retirement, causing the government to adopt a supplementary system in 2008 to top up the retirement funds of low-income retirees.

Another problem: As many Chileans paid into their new 401(k)-type plans instead of social security, that strained the financing of the pay-as-you-go social security plan. “For the U.S., making such a transition would be extremely costly,” Professor Navia said. “You can’t meet all your obligations in the pay-as-you-go system without receiving the money from people who are still working.”

In Britain, the government long had a voluntary savings program to supplement its main social security system. But officials grew alarmed that just a third of Britain’s workers were participating, so it enacted a 401(k)-type program that all employers must participate in unless they already have pension plans.

Under the program, employers must enroll all their employees in a retirement plan, although workers can opt out. The employer contributes 3 percent of each worker’s pay, the worker contributes 4 percent and the government 1 percent. The goal is to raise the worker participation rate to at least 70 percent.

“So far the opt-out rate is low — that’s very encouraging,” said Jane Vass, director of public policy at Age UK, Britain’s version of the AARP.

Many participants are not even choosing from the array of investment options. “The research shows that many employees didn’t want a large amount of choice because that makes decisions more difficult,” Ms. Vass said. “So the vast bulk of people go for the default scheme,” often a target date fund.

Senator Tom Harkin, an Iowa Democrat, has proposed creating a mandatory retirement savings plan much like Britain’s, with modest contributions by employers and employees. But in a country with a distaste for government mandates, his proposal could face rough going.

Mr. John of AARP said the United States could borrow only so much from other countries’ ideas. “Each country’s retirement system reflects their culture, their identity and their history,” he said. “It would be a mistake to assume that because something works in country ‘X’ it will work in the United States.”