Fast read:  If you are young, move to Australia or the Netherlands - Dan.

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No country for old men, or women

Some pension systems are better than others, but all countries struggle to offer benefits

BOSTON (MarketWatch) -- If you could move to any country of your choice
to retire with the most secure pension benefits, which would you pick?
By and large, experts who study pension systems say no country is a
retirement Shangri-La, though certainly some places do better than
others in providing for retirees' financial security.

"I am having a hard time dredging up a country where things are
copacetic," said Olivia S. Mitchell, a professor and director of the
Boettner Center for Pensions and Retirement Research at The Wharton
School. "Everyone pretty much has been hit by the global financial
crisis and virtually everyone is confronting the aging revolution."

Retirees are not so worried

The economic downturn has ravaged many retirement plans, but when
MarketWatch reporters spoke with retirees in San Francisco and New
York, they found people much more concerned about younger adults.
MarketWatch's Andrea Coombes reports.

Others agreed. "We always regard this as a
dreaded question: Which country has the best pension system?" said
Edward Whitehouse of the Organization for Economic Cooperation and
Development (OECD), which this summer published a definitive
examination of pensions in 30 developed countries.

"There is no ideal model pension system in the world," he said.

And Giles C. Archibald, a worldwide partner with Mercer, said, "There's not one country that's got it right."
See MarketWatch's complete coverage of Retirement in Peril.

Still, pension experts say two countries are better than most: The Netherlands and Australia.

The Netherlands

The Netherlands has a generous, quasi-mandated, defined-benefit plan
that's pre-funded, said Steve Sass, associate director for research at
the Center for Retirement Research at Boston College. Plus, he said the
Netherlands' government and other institutions seem competent. "The
country seems reasonably capable of addressing issues that inevitably
arise in the operation of a very long-term economic institution such as
a pension plan," he said.

For his part, Dallas Salisbury, president and chief executive of the
Employee Benefit Research Institute, agrees that the Netherlands is
among the countries with the best pension system in the world --
especially when health care is considered in the equation. "If part of
the health equation is quality and modern technology as well as
comprehensiveness of coverage," he said.

When it comes to retirement security, researchers tend to look at the
percent of pre-retirement income replaced through public and private
pensions, rather than pensions and earned income. The higher the
portion that comes from public and private pensions, the more secure,
relatively speaking, retirees are.

That's why some researchers hold out the Netherlands as a model
country. Many retirees are able to replace close to 100% of their
pre-retirement income through earnings-related defined-benefit plans,
which cover more than nine in 10 workers, plus the country's flat-rate
public scheme, which covers all residents.

Most of the employer-sponsored defined-benefit plans replace 70% of a
workers' final pay. Meanwhile, the public-pension plan replaces 30% of
a worker's average pay. Read about the Netherlands pension system on the OECD Web site (PDF).

Still, it would be near impossible for other countries to duplicate what exists in the Netherlands.

"The Netherlands has a great tool in the form of its basic pension,"
Whitehouse said. "The occupational schemes have very wide coverage.
However, the broad coverage cannot be replicated in other countries,
since, like Denmark, Sweden and Norway, it is a result of a highly
centralized structure of industrial-relations agreements. Most
countries cannot replicate this."

What's more, Whitehouse said that pensions in the Netherlands -- as in
most countries -- are under severe stress. In fact, the defined-benefit
plans in the Netherlands are now cutting back on benefit adjustments
which are generally indexed to wage growth, according to a report on
the state of pensions in OECD countries.

"The effect of these policies affects equally retirees' benefits and accrued pension rights of workers," the report said. Read that report on the OECD site (PDF).

Australia

Australia's retirement-income system has three parts: one, a Social
Security-like system that provides pension benefits based on the
recipient's income level and is funded from general tax revenues
instead of a worker's payroll tax; two, mandated contributions by the
employer to a worker's defined-contribution plan; and three, voluntary
contributions by the employee to his defined-contribution plan.

To be sure, Australia's pension system leaves plenty to be desired.
According to Whitehouse, Australia has a means-tested public pension
with a mandatory defined-contribution scheme on top. Whitehouse said
there are "very high administrative charges for some plans ... and
issues with the tax treatment." What's more, its superannuation funds
fell 26.7% in 2008, the second worst investment performance for private
pensions in the 30 OECD countries. And if all that wasn't enough, the
OECD notes that more than one in four Australian seniors live in
poverty.

But Archibald and others says two features about Australia's pension
system are worth noting. One, the country has made the transition from
defined-benefit to defined-contribution plans in such a way that
there's "little variability around what employers are doing," he said.
In the U.S., by contrast, just one in every two workers has access to a
defined-contribution plan and among those who do have access there's a
great deal of variation.

"One of the issues around retirement benefits is that it eats up lots
of resources that a country might use for other purposes," said
Archibald in praise of Australia's system.

And two, Archibald said Australia will be increasing its retirement age
from 65 in 2017 to 67 by 2023, a move that could help improve
retirement security for its citizens.

Retirement age? Think older

But though Australia and the Netherlands are viewed, at least by some
experts, as having the best pensions systems in the world, the OECD
suggests that much is needed in the way of pension reform around the
globe. And encouraging people to work longer -- through increases in
pension age and reducing pension incentives to retire early -- is a key
objective, according to the OECD.

Countries must shore up the long-term finances of pension systems
crippled by aging populations and out-of-date laws, the group said.
Consider, for instance, how the worker-dependency ratio has changed
over the years. In 1950, there were seven people of working age for
every one of pension age. Today, there are four workers for every one
of pension age and by 2047 there will be just two workers for every one
of pension age.

"Life expectancy has increased so the retirement age must go up,"
Archibald said. "People can't expect to live one-third of the life
being educated, one-third working, and one-third in retirement."

According to the OECD, retirement ages, after falling for decades, have
indeed risen since 2000. And some countries are increasing the full
retirement age to beyond age 65: Australia and Germany to 67; the
United Kingdom to 68; and Denmark to age 67 and then linked to life
expectancy, according to the OECD. Along with Norway, Iceland and the
U.S. that brings to seven the number of OECD countries that already
have or plan to have normal pension ages above 65.

Despite its apparent benefit, however, proposals to increase the normal
pension age are met with strong resistance, the OECD said. Given that,
they said, other types of reform merit attention, including those that
provide incentives for people to work longer. "In Belgium, Denmark,
Greece and the Netherlands, the option of retiring early has been
restricted," according to the OECD. "Finland, France and the United
Kingdom have improved the returns to working after normal pension age."

"If people were to work longer as they live longer, that change alone
would go a long way in ensuring that public pensions are affordable,
and that their costs are sustainable in the long term," the OECD
reported.

Those costs are substantial. Consider this: OECD countries currently
spend an average of 7.2% of national income on public pensions. But the
figure varies widely. Italy spends the most at 14% while Mexico spends
the least at 1.3%. Of note, the Netherlands spends 5% and Australia
spends just 3.5%.

For its part, the OECD said countries need to go through the painful
process of putting their pension system on sounder financial footing.
Korea, for instance, recently lowered its target
pension-relative-to-earnings replacement rate from 60% to 40%.

An adequate retirement income

Make no mistake: Public pensions are scaling back and many countries
are encouraging people to save voluntarily. And some of the reforms are
designed to do just that.

"France, Hungary, Poland and Portugal have introduced new
private-pension plans, often with tax privileges," the OECD said.
"Germany extended the tax incentives that were due to expire in 2008.
Norway mandated employers to contribute a small amount to private
pensions. New Zealand introduced its KiwiSaver scheme, which requires
individuals to opt out of rather than opt in to private pensions. And
the United Kingdom has legislated for a similar scheme that will begin
operating in 2012."

Despite all the changes occurring and those being proposed, pension
experts say there is still much to be done and governments should stay
focused on the long-term and not backtrack on earlier reforms.

Said the OECD: "It remains necessary, in spite of [the economic crisis
and worsening labor market conditions], that governments take steps to
ensure that public policies deliver a retirement-income system for the
long term that is secure, adequate, financially sustainable and
economically efficient."

Robert Powell has been a
journalist covering personal finance issues for more than 20 years,
writing and editing for publications such as The Wall Street Journal,
the Financial Times, and Mutual Fund Market News.