The U.S. retirement system: Pretty good on average. But who's average?

The OECD published its charmingly mistitled once-every-few-years report Pensions at a Glance on Tuesday. It's 280 pages long, and there appears to be lots of stuff in it about the troubles the financial/economics crisis poses for pension funding. But I always go straight for the charts that compare pension systems across countries.

The most generous pension system in the world for workers with average incomes is that of Greece, which replaces 95.7% of preretirement income. But guess how much money Greece has set aside to pay for these pensions in the future? None at all. Good luck, Greek retirees! Or, more to the point: Good luck, Greek economy! France and Germany suffer from similar if less extreme versions of the same problem. Japan, on the other hand, is the least generous, with pensions only replacing 33.9% of the average worker's income—but at least the Japanese have set aside some money (about 20% of GDP) to pay for it.

The pension system that appears to best combine generosity with actual assets is that of the Netherlands (which I've written about before): Income replacement for the average worker is 88.3%, and pension system assets stack up to 138.1% of GDP (or at least did before markets collapsed—that particular data point is from 2007). But the U.S. isn't far behind: the average worker gets 78.8% of income replaced, and pension assets total 93.3% of GDP.

The key word there, though, is average. If you set aside voluntary retirement programs (corporate pensions, state and local government pensions, and defined contribution plans such as 401ks), the U.S. retirement system (Social Security) looks a lot like the Japanese: miserly for middle-income workers (38.8% of income replaced), with some assets set aside but not a huge amount (16.6% of GDP). The voluntary system, which is what makes our overall numbers look good, is distributed extremely unequally: 57.7% of American workers have retirement plans (pensions or tax-sheltered retirement accounts of some kind). And among that 57.7% there's huge variability in how generous the pensions are or how big the retirement accounts are. Some variability is natural: the frugal deserve to be rewarded. But much of it is arbitrary, and inefficient. We set aside massive resources to finance retirement in the U.S., but are probably about to go backward in the quest—which has been more or less stated national policy since the 1930s—to keep elderly Americans out of poverty.