Simplification is the key - Centre for Policy Studies

state in Hungary and France (85% of income). Conversely, only 15% of Finns’ income is
derived from the state, but participation in occupational plans is mandatory. The UK
places a relatively heavy reliance on private pensions and savings (39% of income),
partly because it has one of the lowest state pensions in the OECD, evident from looking
at the state pension net replacement rate (NRR).
The NRR is the ratio of state pension income (including mandatory private pensions) to
earnings, “net” meaning taking into account taxes and social security contributions. In
2006 it averaged 70% across the 30 OECD countries. 105 Figure 11 shows the NRR for
people on 50% and 150% of average earnings, with the countries ranked in reverse order
of the NRR of those on average earnings (i.e. Mexico the lowest).
Figure 11: Net pension replacement rates (NRR) by earnings levels
Low earners' NRR (50% of mean)
High earners' NRR (150% of mean)
* Income from mandatory
private pension schemes
is included (11 countries)
Mexico *
Japan
Ireland
United Kingdom
New Zealand
United States
Korea
Australia *
Canada
Germany
Finland
Belgium
Czech Republic
Sweden *
Switzerland *
France
Norway *
OECD
Portugal
Slovak Republic *
Italy
Poland *
Spain
Austria
Denmark *
Iceland *
Luxembourg
Netherlands *
Hungary *
Greece
Turkey
150
125
100
75
50
25
0
Net pension replacement rate as a % of earnings
105 For 2006. OECD, Pensions at a Glance 2009, 2009.
38