In early June, the Organization For Economic Cooperation and Development (OECD)–the club of the world’s wealthy and almost wealthy nations–released a 208-page document perversely titled Pensions at a Glance. Inside is a rundown of how generous OECD members are to their burgeoning ranks of retirees.
The U.S. is near the bottom, with the average wage earner able to count on a government-mandated pension for just 52.4% of what he got (after taxes) in his working days–and higher-income workers even less. But the picture at the other end of the scale (dominated by Continental Europe) is misleading. Most of these governments haven’t put aside money for pensions. As the ranks of retirees grow and workforces do not, countries will have to either renege on commitments or tax the hides off future workers.
What the OECD data seem to suggest is that you can run a retirement plan that’s fiscally sound but stingy, or you can make big promises that will eventually go sour. The U.S. fits mostly in the former category–for all the gnashing of teeth about Social Security, its funding problems are modest by global standards.
But is that really the choice? Actually, no. At least one country appears to have found a better way. In the Netherlands–“the globe’s No. 1 pensions country,” says influential retirement-plan consultant Keith Ambachtsheer–the average retiree can count on a pension equal to 96.8% of his working income. Ample money is set aside to fund pensions, and it is invested prudently but not timidly. Companies contribute to employees’ accounts but aren’t stuck with profit-killing obligations if their business shrinks or the stock market tanks. Read more.
The Dutch retirement system, which I’ve already briefly discussed in this blog, is made up of the same three “pillars” as the U.S. version is supposed to be: a pay-as-you-go government pension, prefunded corporate pensions and personal savings. The big difference is that Dutch politicians took the second pillar seriously and made sure that (a) the entire workforce is covered (except for the self-employed, and they’re trying to fix that) and (b) your pension moves with you if you switch jobs. I’m not sure how the U.S. can get there from where we are now, but I’ll be posting more on the subject in the coming days. Whether you want to read about it or not.