x Abu Dhabi, UAEWednesday 26 July 2017

Pension schemes around the world

A look around the pension schemes prevalent in other parts of the world and what is being proposed as change.

UAE

Retirement age: 60

Issue 1: Generous pension plans based on high salaries are a burden to the Federal Government. Although the current regime is sustainable, it might discourage foreign investment and discourages nationals from entering the private sector.

Pension: Nationals pay a portion of their retirement into a fund. The fund is then responsible for paying out pensions equal to anywhere between 50 per cent and 100 per cent of their last monthly salary.

Issue 2: Massive public-sector salary increases in the past few years have created vast differences in retirement benefits. Some employees who retired before the salary increase are upset that their pensions were not increased as well.

 

FRANCE

Minimum retirement age: 60

Proposed age: 62

Issue 1: Opponents of the reform, led by unions and the Socialist Party, say the reforms attack the poorest residents. They also claim that women and many in precarious employment or starting work after long study will be disadvantaged because, without the necessary contributions record, they will have to work until 67, instead of 65, for full state pension entitlement.

Pension: France's system is a compulsory pay-as-you-go model, based on salary deductions from people currently in employment to fund the pensions of the retired. Annuities are calculated on an individual's contributions record; private top-up plans are relatively rare. Some unions urge higher contributions, but France's tax burden is already high.

Issue 2: France has one of the world's lowest existing retirement ages, but high life expectancy (women 84, men 77). The proportion of over-65s will double to 50 per cent by 2050, thus "more older people, fewer of working age to support them", according to the Organisation for Economic Co-operation and Development (OECD).

 

UNITED KINGDOM

Retirement age: 65 for men and 60 for women, increasing to 66 for everyone by 2020.

Issue 1: The National Association of Pension Funds describes the UK's means-tested, state pension (£97.65/Dh566.88 a week maximum) as the "worst in Europe" and is arguing for simplification and less bureaucracy, moves the government has now put out for consultation.

Pension: There is a state pension, based on one's National Insurance contributions (automatically withdrawn from one's pay cheque) over one's working life. Women who have children lose out when they stop paying National Insurance. Separately, there are additional, non-compulsory workplace pension schemes.

Issue 2: The economic downturn has led to Britons saving less for pensions: down from £19.26 billion in 2008-9, to £18.2 billion in the last financial year.

 

UNITED STATES

Retirement age: 66

Proposed retirement age: 69

Issue 1: Most politicians talk of the need of reform. Some conservatives belonging to the Tea Party movement want to slash Social Security, but the elderly make up a valuable voting bloc that few Republicans want to alienate. The recession has also increased the need for welfare provisions.

Pension: The US government pension system is based on Social Security while health care is covered by Medicare and Medicaid. Most employers offer a retirement plan in which both employer and employee contribute, and people are encouraged to buy into private plans.

Issue 2: Of the 14.9 million unemployed, more than 2.2 million are 55 or older. A Gallup poll in April showed that more than one-third of people not yet retired plan to work beyond the age of 65 compared with just 12 per cent in 1995.

 

CANADA

Retirement age: 65

Issue #1 - Canada's aging baby boomers are expected to tax the country's government-run Canada Pension Plan as they begin to retire. Retirees are living longer and there are concerns the CPP won't be able to able to provide adequate retirement benefits unless changes are made.

Pension: Under the current Canada Pension plan, retirees can receive 25 per cent of their average career earnings up to an annual limit of $47,200. On top of that many retirees have company pensions or private registered retirement savings plans.

Issue #2 - Many Canadians aren't saving enough for their retirements and an estimated 11 million Canadians don't have access to workplace pension plans.

 

INDIA

Retirement age for central government employees: 60

Proposed retirement age: 62

Issue 1: India has a large number of young people, but as the population grows, it is expected to add a substantial number of elderly people. By 2050, those 60-79 will make up 21 per cent of the population and those over 80 an additional 15 per cent.

Pensions: All central and state government employees are covered under a pensions plan. But that covers only 12 per cent of India's workforce. The majority in India's unorganised sector depend on voluntary public provident fund schemes or the national pension scheme.

Issue 2: A hike in the retirement age might help India reduce its yawning fiscal deficit, but the finance ministry worries that the hike might make government jobs scarcer for the country's youth and cause long delays for current employees waiting in line for promotions.

 

CHINA

Retirement age: 55 (women), 60 (men)

Proposed retirement age: 60 (women), 65 (men) in Shanghai's private sector

Issue 1: China's social security fund has a shortfall of about US$1 trillion (Dh3.67 trillion), and extending retirement would both increase revenues and reduce expenditure, although some say the amounts are too small to affect the deficit significantly. Increasing the retirement age would, according to many analysts, make it harder for young people to find jobs in a country said to have a severe surplus of labour, even if there are signs this year of the labour market tightening.

Pensions: Before China's reforms of recent decades, workers were provided with pensions through the "work units" that employed them. After these were dismantled, individual pension accounts were set up, paid for by employees and companies.

Issue 2: Although coverage of the work-unit pensions is said to be low reforms have been suggested. The government is also introducing a pension scheme for rural workers and farmers, in part to encourage them to spend more.

 

SPAIN

Retirement age: 65

Proposed age: 67

Issue 1: The opposition Convergencia i Unio party says people actually retire at age 62 or 63 and this issue must be dealt with before retirement age is raised.

Pension: Spain's pension system has three segments: a state system granting 85 per cent of one's salary; plus a voluntary work pension and a private pension arrangement.

Issue 2: By 2050, Spain expects that 67 per cent of its population will be retirees and therefore dependent on the old-age pension.

 

RUSSIA

Retirement age: 60 (men), 55 (women); miners, lumberjacks, pilots, cosmonauts as well as a dozen other specialists can retire earlier

Issue 1: Last summer, the finance minister said Russia might increase the retirement age and that if people hold off on retiring, their pension will be larger. But since the average life expectancy for Russian men is below 60, raising the retirement age would mean that many would not live to receive their pension. In November, the president, Dmitry Medvedev, cited life expectancy when he told the Rossiiskaya Gazeta there were no plans to raise the retirement age.

Pension: The Russian pension system has three segments: a government-paid $88 a month; an insured portion, which is eight per cent of one's wages withheld by the employer and transferred to the State Pension Fund, then paid out upon retirement; and an accumulative portion, in which six per cent of wages are withheld by the employer and paid to the State Pension Fund, but which the wage-earner can move to licensed private pension funds.

Issue 2: Russians aren't investing under the third segment. They don't seem to believe that six per cent of their wages is significant enough to bother investing.

 

BRAZIL

Retirement age: 60 (men), 55 (women)

Issue 1: The Workers' Party of the former president, Luiz Inacio Lula da Silva, initially opposed raising the retirement age to the present 60 and 55. But when it came into office in 2003, the party fell behind Lula, who argued reform was necessary to avoid bankrupting the state.

Pension: The Brazilian pension system has three components: the public scheme is managed by the National Social Insurance Institute and covers all private-sector workers, beginning at 70 per cent of the beneficiary's average monthly salary and increasing gradually every yearly by one per cent up to a maximum of 100 per cent; a regime for government workers; and voluntary personal pension plans privately managed by closed and open pension funds and insurance companies.

Issue 2: Reform of the social security system was an election issue last fall, with some economists warning that the deficit could grow sharply if benefits aren't curtailed. Lula's successor, Dilma Rousseff, of the ruling Workers' Party, will probably not initiate any overhaul of the system: it was reformed somewhat in 2003 and civil servants, one of the party's main constituencies, oppose any more changes.

 

PHILLIPINES

Retirement age: from 60 (optional) to 65 (mandatory)

Issue 1: Military and police personnel currently retire at 56, putting a huge strain on the pensions system. One senator, a former naval officer, has recommended boosting the retirement age to 65, but this was dismissed quickly by the defence secretary. Instead, the possibility of raising it to 60 has now been recommended.

Pension: The system essentially has four tiers. The first tier is really a social assistance scheme for poor. The second are mandatory defined benefit schemes for private sector and for public sector employees. The third is a mandatory deposit plan, the funds of which are available upon retirement, and the fourth is a voluntary contribution to private plans.

Issue 2: The government faces the possibility of having to pay more in pensions for its retired military and police personnel than for the salaries of soldiers and police in active service.

 

EGYPT

Retirement age: Gradual increase to 65 from 60 for those entering the workforce after 2012

Issue 1: During debate this year, analysts said a new pension system was needed to ensure Egyptians are better provided for in retirement. Unfortunately, the law does not cover the country's large numbers of street vendors, cleaners and other workers not employed by either the state or companies.

Pension: Under the new law, the government requires establishment of a pension and unemployment fund for each employee, in the public and private sectors, into which employers and employees will contribute. The government has said it hopes that two-thirds of each individual's pension fund would be invested in government bonds and the rest in other investment funds.

Issue 2: The investment portfolio needs to be diversified, the finance ministry has said, so the state pension fund will begin directing billions of dollars into private investments, including private equity, real estate, land and corporate bonds, as of January 2012.