OECD - Pensions at a Glance 2019

The world of work is changing. Mega trends, such as digitalisation, globalisation, and demographic and climate change are transforming our economies and societies. Many new opportunities for growth and development are emerging, but also some clear challenges with increasing numbers of people with unstable working conditions, often in temporary or part-time jobs, and with low and intermittent earnings. New technologies make it easier and cheaper to offer and find work on-line, and platforms have seen an exponential growth in recent years, even if they still account for a small share of employment across the OECD. Overall, non-standard employment, including self-employment, accounts for more than one in three jobs in OECD countries. Non-standard workers are a very diverse group, but on average, they earn less on an hourly and especially yearly basis. For example, a median full-time self-employed person earns 16% less than a full-time employee, on average across the OECD.

What does this mean for workers social protection? Most social protection systems were built on the premise of stable, linear careers, often with only one employer, and thus are ill equipped to provide adequate income security for non-standard workers. Many of them, be it in self-employment, short-term, gig, platform or click work, risk falling through the cracks.

These developments challenge all branches of social protection, but one stands out in particular due to its long-term impact: the provision of old-age security. For pensions, the future of work is now. Many countries have tightened the links between contributions and pension benefits and thus, to reach an adequate pension, contributions have to start early and continue for the whole career. Countries have long recognised this; they have therefore made membership in pension systems mandatory for most workers and are encouraging participation in voluntary occupational and personal pension plans.

But as always, the devil is in the detail. Workers on fixed-term contracts should in theory be covered, as most countries align rules with those for standard workers. The problem is largely about the level of expected benefits given their patchier and generally lower contributions. However, in some countries, for some specific groups, reduced or no pension contributions are required for self-employed workers, temporary agency workers, young workers, seasonal workers, apprentices and/or trainees.

Ensuring pension coverage for the self-employed is much more difficult. Without a formalised employment relationship, it is not clear on what basis pension contributions should be levied. For employees, contributions are often based on the gross wage, but this does not correspond to any category of a self-employed workers earnings. Also, it is very difficult, if not impossible, to distinguish between labour and capital income. Still, most OECD countries require the self-employed to contribute to their mandatory pension systems. Why then is pension coverage still a challenge?