Voluntary Pension Saving for Old Age: Are the Objectives of Self‐responsibility and Security Compatible?

Fiscal pressure and demographic change lead governments to seek ways of reducing state expenditure on pensions. Individuals are asked to take more responsibility, and funded, supplementary pension schemes have been established in many countries. This article looks at schemes that are voluntary – the NEST or Personal Accounts scheme in Britain and the Riester Pension scheme in Germany. It examines the debate about whether it is worthwhile for some people to participate in pension schemes that are not mandatory – particularly those with low incomes and/or potentially broken careers. The small pensions they accumulate in such schemes merely offset entitlements to means‐tested pension benefits, leaving them no better off in old age. Concerns about the behavioural consequences of pension means‐testing are not new. Nonetheless, few policymakers have been willing to look at when and how such concerns were expressed in the context of voluntary pension savings. Equally, they have seldom been prepared to explain the costs involved in guaranteeing savings‐based pensions or the implications that the lack of offering such a guarantee might have for individual behaviour. The state has sought for people to take greater ‘self‐responsibility’ for their retirement income, but many people wish for some certainty with respect to the pensions they can expect. These goals might well be in conflict. Whether the ‘state pension for the 21st century’, as proposed by the UK government, will succeed in satisfying the objectives both of the state and of pension savers remains an open question.     

Second‐pillar pensions in Central and Eastern Europe: Payment constraints and exit options

During 1998–2007, a majority of Central and Eastern European (CEE) governments enacted laws obligating workers to save for retirement in privately managed individual accounts. The governments funded these accounts with a portion of public pension revenues, thus creating or increasing deficits in public systems. After the onset of the global financial and economic crisis (2008), most CEE governments reduced these funding diversions and scaled back the accounts. Now, a decade after the crisis, this article examines the benefits that the accounts are beginning to pay retiring workers. In general, these benefits are shown to be disadvantageous compared with public pensions. Some pay lump sums in lieu of regular monthly benefits, most fail to adjust pensions regularly for inflation, and some pay women less than men with equal account balances. In several countries, pensioners with individual accounts receive lower benefits than those without them. To enable retiring workers to avoid these disadvantages, several CEE governments have allowed them to refund their account balances and receive full public pensions. Yet while this strategy diffuses worker dissatisfaction, it also places strains on public pension finance. To assist second‐pillar account holders without weakening public pensions, governments should consider making private pension savings voluntary and financing these schemes independently of public pensions – i.e. by worker and employer contributions and, possibly, direct state support.     

Pension policy design changes in EU countries since the mid‐1990s

Recent decades have been characterised by significant pension reforms. This article reviews this process, focusing on five policy design issues that have concerned policymakers: optimising poverty alleviation effectiveness; redefining the state's role in smoothing incomes over the life‐course; balancing contributions to benefits; adjusting the system to respond to demographic, economic and social changes; and ensuring that reforms will be long‐lasting. While the role of state pensions is diminishing, there is a growing realisation of the need to ensure that they remain adequate, reigniting interest in minimum pensions and contribution credits. The expanding role of private pensions has led governments to intervene more in their operation. Policymakers have shown interest in automatic adjustment mechanisms to bring about required economic changes. However, there is greater understanding that for these to happen, the state has to engage more with its citizens.     

From pension funds to piggy banks: (Perverse) consequences of the Stability and Growth Pact since the crisis

As part of their strategy for economic and monetary union, European governments committed themselves to fiscal discipline – particularly by placing limits on annual deficits and on public debt. Subsequently, and as they sought to respond to the “current crisis”, they embraced the view that only if public finances were kept under control would sustainable recovery be possible. Rules of fiscal governance were strengthened. To help them meet these rules, the governments of many member States of the European Union made changes to their pension systems or to funds they had established specifically to pay the costs of population ageing. The intention was not to cut retirement benefits or to improve the efficiency of the relevant pension schemes and institutions. Rather, it was to free up resources immediately. Funded pension schemes and pension funds were treated like “piggy banks” that were raided when times became hard. Moreover, the policies pursued succeeded in meeting their objectives only because the system of national accounts according to which outcomes are judged does not recognize the way in which most of the fiscal gains are matched by future fiscal liabilities.     

A “Swedish” actuarial balance for a notional defined contribution pension scheme with disability and minimum pension benefits

This article proposes a “Swedish” type actuarial balance sheet (ABS) for a notional defined contribution (NDC) scheme with disability and minimum pension benefits. The proposed ABS splits the pension system in two parts: the pure NDC part and the redistributive part, which includes the assets and liabilities originating from non‐contributory rights. The article contains a numerical example that sheds light on the real applicability of our proposal. The model has practical implications that could be of interest to policy‐makers, given that it integrates actuarial and social aspects of public pensions and discloses the real cost of redistribution through minimum pensions.     

Employers and the Management of Retirement

In the UK early withdrawal from the labour market is seen as a risk and a cost, worsening the dependency ratio, raising public and private pension costs and threatening additional welfare expenditure over the longer term. Explanations of the retirement process have focused on the welfare state and the impact of pensions and other social security policies. This paper argues that a missing actor in these accounts is the employing organization. Early retirement in the UK has been predominantly driven by the labour requirements of employers rather than state policies to encourage older workers to take early retirement. There is a case for arguing that significant change in retirement behaviour in the UK will come primarily from the modification of employers’ policies. This research is a case study of three employers: one public‐sector and two commercial. It examines the dynamics of the retirement decision. This paper reports the public‐sector case. The findings indicate that employers, in order to reduce their pensions liabilities and stem the cost of early retirement, are trying to regain control of the retirement process. The employees interviewed felt they experienced little choice concerning their retirement, had limited knowledge of the options open to them and found pensions complicated and confusing.     

FINLAND

The durability of all institutions during this last decade of the twentieth century has been tested by the economic recession. Repercussions have hit the Finnish pension system from two directions - problems in financing, and the need to cut costs in the public sector. However, in the long run, the question of securing pensions is a matter of will. In recent years, some major amendments to laws have been made successfully, including a higher age limit for early retirement, lower levels of disability and early retirement pensions and diminished index adjustments of old-age pensions. These amendments give even more reason to believe that the main contributors to the pension system have the capacity and the will to secure the Finnish employment pension system.     

Old and Cold: Older People and Policies Failing to Address Fuel Poverty

Research, funded by the British Gas Help the Aged Partnership and carried out by the Institute of Gerontology, King's College London, explored the multidimensional issues of fuel poverty. A sample of older homeowners and private renters living in England, Scotland and Wales were interviewed in the Spring of 2003 to explore their experiences of keeping their homes warm in the preceding winter. It was found that almost half of the sample for whom full information was available were in fuel poverty. Government schemes failed to address some important issues. Grants were only available to those with “passport benefits”, excluding those who had minimal occupational pensions. Although most respondents had central heating, it was often old and ineffective, yet grants were not available to modernize them. Government schemes did not extend to paying for external and internal insulation for solid wall properties yet many older people live in such property. Several older people lived in rural areas not connected to mains gas. As mains gas currently provides the cheapest fuel, they faced high bills, yet government policies do not address the differential fuel costs in these areas. The culture of many older people in the study contributed to their living in cold homes. They lived frugally and usually turned heating off in daylight hours during winter. It was also a common practice to sleep in an unheated bedroom during winter and to keep the window open at night. Such practices are acknowledged to be unhealthy.     

Survivors' pensions and their impact on the Brazilian labour market

In many countries the regulations governing survivors' pensions were established in periods when female labour market participation was lower than at present. However, the current trend in many Latin American countries is for growing levels of female labour participation. In Brazil, where there are no restrictions on the concurrent receipt of retirement and survivors' pensions, and where until recently lifelong pensions could be obtained without any conditionality, not only has the accumulation of such benefits grown, but there are indications that these rules have had a negative impact on women's labour market participation. Analysis of the case of Brazil shows the need for social security regulations to adapt to labour market changes, and underlines the need to acknowledge that social security regulations can actually have an impact on the labour market.     

Privatization, provision, and targeting: Trends and policy implications for social security in the United States

This paper examines several important trends in the changing structure of social security in the United States and their impact on the elderly in different income groups. These trends involve the shifting public/private mix of retirement income, the declining replacement rates of public benefits, and reforms for targeting benefits by age. An analysis of these trends suggests that (a) social security will provide declining economic support for those most in need; (b) middle- and upper-income groups will have a diminished stake in social security, reducing the programme's political base of support; (c) increasing reliance on occupational pensions will heighten the need for greater public regulation of private schemes; (d) an unplanned two-tiered system of pensions will emerge, with the first tier consisting of a whittled-down version of social security to provide a predominant source of retirement income for low-income wage earners and the second tier consisting of private pensions for middle- and upper-income groups.     

Private Pensions — a Viable Alternative? Their Distributive Effects in a Comparative Perspective

Pension reforms have been on the political agenda of governments and international organizations like the OECD and the World Bank for some time. The strengthening of private elements in pension systems is often believed to intensify existing inequalities in the distribution of pensions among the population and to contribute to the marginalization of large groups of older people. This paper explores the distributive effects of private pensions on the basis of Luxembourg Income Study microdata for 12 industrialized welfare states. While confirming that private pensions indeed tend to produce specific inequalities, its results also emphasize the importance of policy factors in mitigating the distributive effects.     

Women's pensions in Sweden

This article analyses the effect of the Swedish pension rules on women's and men's pensions. This is done on the basis of an empirical analysis of a representative sample of the population. The study indicates that the rules are least advantageous for women in typical low-wage occupations. I also relate different people's pension benefits to what they have had to pay into the pension system in the course of their working lives. My calculations show that female low-wage earners probably have to pay more for their pensions than other groups.     

Health and welfare of immigrants and access to services in Australia

The main issues in relation to the provision of health and social welfare services for migrants in Australia are: (a) to ensure access and equity; (b) concern about the relatively high proportions of some groups from specific birthplaces requiring support; and (c) the complexity and costs of ethnically specific services. This article focuses on the major pensions and benefits paid by the Department of Social Security, particularly the age pension and unemployment benefit. It also examines the interrelationship between mortality, morbidity, private health insurance, use of health services and the proportions on health-related pensions. Linked with these issues is the debate about an appropriate level of immigration when the unemployment rate is high, as in the current recession, and when new arrivals have little prospect of finding a job. A second major concern is the cost of caring for elderly immigrant parents who have come to Australia under the family reunion program.     

Self-Employed People in the United Kingdom: Included or Excluded?

Within the United Kingdom social security scheme, self-employed people remain excluded from some of the most valuable benefits, yet there is some evidence to suggest underuse of benefits to which they do have access. There are administrative problems in dealing with applications for benefit from self-employed people, and there is considerable undercollection of the National Insurance contributions that are due. Self-employed people in the United Kingdom are not well provided for through private pensions and insurance. The author draws on her recent research, and argues that a fundamental review of social security for self-employed people in the United Kingdom is overdue.     

Social Security in Hungary: A Balance Sheet after Twelve Years

The social and political transformation in Hungary contributed to the development of a democratic political system and to the establishment of the rule of law and a market economy. The process was accompanied by a series of economic and social problems. The paper first reviews the social policy orientation of the three free consecutive governments elected since the transition. None of them has had a clear political profile: they have constituted mixed and unclear welfare regimes. None of them has sketched a clear welfare policy except perhaps the current government. In its case central redistribution is consistently biased in favour of the middle and upper strata at the expense of the poor. Instead of a consensual plan defining priorities, decisions and reforms in the last ten years have been motivated by political interests, at hoc ideas, and authoritarian rulings. The paper next shows what reform meant in the case of the different instruments and various fields of social policy, namely unemployment, health, pensions, family benefits and social assistance. It concludes that while both the inherited and the newly created systems had contributed to alleviate the shocks of the transition, yet there never was enough political will to give sufficient or adequate help to those needing it. As a consequence of the "reforms" public expenditures have been significantly reduced. The welfare gap between East and West has thereby grown. The consequence is that the country has become gravely divided, and that poverty is greater and deeper than it might have been under a different set of policies.     

Should Public Pensions be Funded?

This paper outlines some of the arguments for and against the funding of public pensions, with a view to establishing whether there is an economic basis for judging it to be superior to pay-as-you-go (PAYG). It is concluded that if funding has an edge over PAYG, it is not an overwhelming one. While funding may have a modest cost advantage over PAYG and have superior characteristics from the standpoint of intergenerational redistribution, its alleged superiority in handling demographic and economic risk, as well as in signalling future pension costs, is difficult to justify. While theoretical arguments tend to be consistent with the view that funding will be associated with higher saving than PAYG, convincing empirical support is missing. Nevertheless, the momentum for shifting from PAYG to funding remains. But if there is to be such a shift, there may also be a case for shifting from public to private pension provision.     

Old-age Pensions in Spain: Recent Reforms and Some of Their Consequences for the Risk of Poverty

The starting point of this study is based on the supposition that the successive reforms carried out on the Spanish system of old‐age pensions since the 1980s have altered both the intergenerational distribution of income and the risk of poverty for the elderly. The article will first outline how demographic factors and personal incomes affect the risk of poverty among the elderly. The second part focuses attention on the mediating role played by the social security system in the distribution of intergenerational income, and underlines how the adoption of a longitudinal viewpoint of the intergenerational positions helps us to understand the development of the risk of poverty among the elderly. The third part describes in brief the successive reforms that were carried out on the Spanish regime of retirement pensions. Finally, an analysis of the evolution of the personal incomes of the elderly and younger generations has been made, based on the data collected by the European Community Household Panel from 1994 to 2001. This analysis suggests that the reforms have increased the risk of poverty among the over‐60s owing to a combination of two factors. On the one hand, there has been an increasing tendency among the over‐60s to stop working completely, which has reduced job earnings especially for men aged between 60 and 70. Even more important has been the failure of public pensions to keep pace with the increase in the standard of living, though it is true that they have helped maintain the average purchasing power of the less well‐off old‐age pensioners.     

Australia's retirement income revolution: a Finnish system "down-under"

Most advanced industrial societies are confronting serious economic recession, and governments are seeking ways to stimulate economic growth and reduce government expenditure. For many countries these problems are compounded by aging populations and demographic changes. There are fewer people in the workforce, and more people in older age groups live longer and have increased expectations for retirement lifestyles. The result has been that many governments are radically transforming their systems of retirement income provision, often causing political, economic and social upheaval and widespread public anxiety. Australia is one country in which there have been huge changes in the retirement income system in the past 5 years. The system has been substantially privatized, and future retirement income will come from statutorily enforced earnings-related individual savings accumulated in decentralized private funds. Australia's new retirement income regime bears extraordinary similarities to the Finnish system of employment-related pensions, yet there was no reference to the Finnish system in the evolution of the new Australian system. There are lessons for Australia and for other countries in the long and successful operation of the Finnish pension system. This article first examines Australia's retirement income system, recent government policy changes and likely implications of these retirement policy changes for the future of Australia's traditional welfare state. Cross-national comparisons of the retirement income regimes in Finland and Australia, identifying international best practice in each country, comprise the second half of the article. Such comparisons will be of interest to policy-makers seeking new policy directions.     

Social needs and the roles of governments and markets: The case of retirement pensions

The present paper examines the role of the State and the market in meeting social needs, with particular emphasis on retirement pensions. The argument proposed is based primarily on an analysis of recently observed ideological developments as well as of the results of various empirical studies conducted on the topic. A review of several theories and current debates on the issue constitutes the introductory part of the analysis. This is followed by a discussion of retirement pensions and the shortcomings of governments in this domain and by a review of the evidence obtained on the interaction between retirement pensions, investment and growth. Data and calculations relating to several developed and developing countries are presented as an illustration of the State's responsibility for social needs. The conclusion presents some reflections based on empirical evidence and a synthesis of insights obtained in this study.     

European Health Care Costs

The rising cost of health care in Western European countries is now seen by many governments as a problem, and attempts are being made to find a solution by introducing cost-containment policies.
The author begins by reviewing trends in health care expenditures, and examines some of the underlying reasons for the upward trend.
He then considers some of the more important differences in the organization and financing of Western European health care systems, before surveying the different kinds of cost-containment policies which are being, and could be, pursued.
The conclusion is that present cost-containment policies do not take sufficiently into account the underlying reasons for rising costs, and that the criteria for evaluating the success of these policies are inadequate. To be successful, the policies will have to be altered, and the objectives and means of evaluation reconsidered.