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11 August, 2022

Key parameters in the public PAYGO systems – 2021 / June 2022

Due to ongoing population aging, the PAYGO systems have run into serious funding problems. This has led many countries to constantly adjust their parameters, or to seriously deplete their public finances, creating a situation that could become unsustainable over time.

The Key parameters in the public PAYGO systems table is presented to study the current and future situation of these systems, reporting on the current and future official retirement ages, contribution rates, the estimated net replacement rate, public PAYGO system deficits (% of GDP), and the number of years of contribution required for accessing a full or partial pension, for a group of countries in Europe, the Americas and Asia.
Some trends found are the following:

  1. The official retirement age in 2021 ranged from 50 (China, in the case of some women) to 67 (Greece and Italy).
  2. Comparing the 2020 and 2021 data revealed that the most pronounced increase in the retirement age, (six months), occurred in Hungary, followed by Spain, the Czech Republic and the United States, with an increase of 2 months, and Germany and Portugal with an increase of 1 month.
  3. Contribution rates to the public PAYGO systems range from 6.5% (Honduras) to 34% (Brazil, for those with higher incomes), being generally higher in European countries.
  4. Net replacement rates (OECD estimate for a worker earning a wage equal to the average wage in the economy) fluctuate between 30% (Peru) and 102.7% (women in Brazil). The replacement rate is a consequence of all other parameters, such as the contribution rate, the retirement age, public expenditure and the number of years required for accessing a pension.
  5. All European PAYGO systems will be in deficit by 2025, except for Portugal (surplus of 0.4% of GDP) and it is estimated that almost all these countries will remain in deficit until 2070. All countries in the Americas will have short-term deficits, apart from Canada (balanced).

Most countries require a minimum number of years of contributions to the system for accessing a full pension, fluctuating between 15 years (Brazil, in the case of women at the official retirement age) and 45 years (Belgium). Other countries, in turn, set a minimum number of years of contribution to access a partial pension, ranging from 1 year (France and the United Kingdom) to 30 years (Belgium). It is important to note that those who do not meet the requirements for accessing a partial pension do not receive a contributory pension, and therefore lose everything they have contributed during their working lives.

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