Self-employed workers earn on average an old-age pension equal to 79 percent of that of an employed person in the OECD. In some countries, the situation is far worse for self-employed workers, for example in Mexico, where the self-employed receive only 17 percent of what their employed counterparts earn on the public pension. In Germany, self-employed persons can expect to earn just 44 percent of the employees’ pension and in the United Kingdom 52 percent. This is largely related to countries’ varying stances on whether or not the self-employed are required to contribute to earnings-related pension schemes. At the other end of the spectrum of the 39 OECD countries studied are economies including the United States (100 percent), Australia (109 percent) and Luxembourg (115 percent). This data is from the OECD Pensions at a Glance 2023 report, using data from 2022.
There are huge variations in the types of work and income for both the self-employed and employed. To be able to draw a comparison, this calculation is based on the theoretical pensions of a self-employed worker relative to an employee assuming that both have a taxable income (net income or net wage before taxes) equal to the average net wage before taxes. In addition, it is for a person whose career starts at age 22 in 2022, does not face any interruptions and retires at the normal retirement age. They contribute the amount that is (quasi) mandatory to pensions.
According to the OECD, 13 countries of the 39 studied have mandatory employee-like schemes, where the self-employed are required to contribute the combined employee and employer contributions. These are Canada, Costa Rica, Czechia, Estonia, Finland, Hungary, Korea, Lithuania, Luxembourg, Portugal, Slovenia, Turkey and the United States. Chile looks set to join this group as of 2027, but currently falls under a second category for countries where pension coverage is limited because self-employed persons are allowed to pay a reduced contribution rate compared to employed persons. There are 12 countries in this group, including France, Italy, Norway, Sweden and Switzerland.
A third category is for countries where self-employed persons pay a flat-rate of lower contributions. This group has four nations: Colombia, Greece, Poland and Spain. Under a fourth category are countries such as Ireland, the Netherlands and the United Kingdom, where there are mandatory contributions to basic pensions only. In the final and fifth category are nations such as Australia, Denmark, Germany and Mexico, where there are no mandatory pension contributions that must be paid by self-employed people. In New Zealand, there are no mandatory pension contributions that must be paid by either employees or the self-employed.
According to the report, lower contributions do not always lead to proportionally lower pensions. For example, in Austria and Costa Rica, the reduced contributions of the self-employed are “topped up” with taxes. Where percentages sum to over 100, as with Austria and Luxembourg, this is due to those countries calculating pensions of the self-employed based on income before deducting contributions, and so the contribution rate paid by the self-employed is higher than the employed.
Source: Infographic: Where Being a Freelancer Hurts Your Pension Prospects
