The distributive impact of private pensions in the context of the institutional designs of public pension systems across OECD countries

Income inequality has been increasing across the developed world for the last few decades. The welfare state has played an important role in reducing income inequality, but it has now entered into an era of transformation. The shift from public to private pension schemes is one of the main policy instruments in this shift. An increase in private pensions is expected to create an increase in income inequality. Therefore, using data from OECD SOCX, this study examined how the effect of private pensions on income inequality might be changed by the institutional design of public pension systems. The results suggest that the effect of private pensions differs when the institutional design of the public pension system is considered. An increase in private pensions is related to an increase in income inequality when the public pension has a low level of coverage and a high level of earnings‐relatedness.     

Reducing Inequality in Childcare Service Use across European Countries: What (if any) Is the role of Social Spending?

Childcare services are increasingly put forward as one of the most important policy levers to combat poverty and inequality. However, higher income families use childcare services to a much larger extent than lower income families. Almost all European countries increased expenditures on childcare over the past years, but has an ever‐increasing public spending on childcare provision led to more equality in its use? In this article, the relationship between spending and childcare use as well as between spending and inequality in childcare use over the period 2006–12 is empirically analyzed using a random effects model drawing on country‐level panel data (n = 156), derived from the EU‐SILC and OECD SOCX databases. Since governments can spend money in different ways, it is discussed whether a public or a market‐based strategy to subsidize childcare provision is related to more equality. The results suggest that more spending leads to higher levels of childcare use, but not directly to lower levels of inequality. For achieving equity in childcare use, government investment should lead to an expansion of childcare places across the income distribution. The findings allow the formulation of new hypotheses regarding the role of the private market in childcare services 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.     

Do public pensions matter for health and wellbeing among retired persons? Basic and income security pensions across 13 Western European countries

Esser I, Palme J. Do public pensions matter for health and wellbeing among retired persons? Basic and income security pensions across 13 Western European countries Int J Soc Welfare 2010: ??: ??–??© 2010 The Author(s), Journal compilation © 2010 Blackwell Publishing Ltd and International Journal of Social Welfare. Mortality rates suggest that elderly people in the advanced welfare democracies have experienced dramatically improved health over the past decades. This study examined the importance of public pensions for self‐reported health and wellbeing among retired persons in 13 Organisation for Economic Cooperation and Development countries in 2002–2005. New public pension data make it possible to distinguish between two qualities of pension systems: ‘basic security’ for those who have no or a short work history, and ‘income security’ for those with a more extensive contribution record. For enhanced cross‐national comparison, relative measures of ill‐health and wellbeing were constructed to account for cultural bias in responses to survey questions and heterogeneity among countries in the general level of population health. Overall, better health is found in countries with more generous pensions, although the results are gendered; for women's health, high basic security of the pension system appears to be particularly important. Women's wellbeing also tends to be more dependent on the quality of basic security.     

The interaction of pillars in multi‐pillar pension systems: A comparison of Canada,Denmark, Netherlands and Sweden

Canada, Denmark, the Netherlands and Sweden have advanced multi‐pillar pension systems. Using micro‐simulations, this article presents a close examination of the interaction of pillars in these countries. The relative importance and the role of the different pension pillars vary from country to country, and according to age, income, gender and socio‐economic dimensions as well as between generations. A further area of investigation is the mitigation capacity of the four pension systems. On the one hand, adverse labour careers lead to lower life‐time earnings and lower private pension accruals. On the other hand, these effects are mitigated through the design of pillars and their interaction. Mitigation is important to income security and stability in retirement and to post‐retirement income distribution. However, mitigation mechanisms come at the cost of incentives. Moreover, in many countries, the generosity of public benefits is set to decrease – increasing the importance of private pensions. This will shift risk and uncertainty from employers and pension institutions to individuals. Thus, risks and uncertainties related to private pensions will become more important, raising questions about the division of responsibilities between public and private pensions, and about the potential of mitigating such risk through pillar interaction. These concerns are further reinforced by labour market changes. Although a pension system free of distortions is inconceivable, this article seeks to contribute to addressing how mitigation should be designed, and how mitigation and risk sharing should be balanced against incentives, challenges which are as much political as technical.     

Developmentalism in Korea: A Useful Tool for Explaining the Role of Social Security in the Reduction of Poverty and Inequality

It is conventional wisdom that universalism is more effective than selectivism in addressing the problems of poverty and inequality. In providing income security for the elderly, retirement pensions calculated on the principle of social insurance represent universalism and social assistance benefits on the basis of means-test selectivism. Korea has both a contributory pension scheme and social assistance program for the elderly. The social assistance began in 1961. The contributory scheme, the National Pension, started belatedly in 1988 and its coverage expanded to the entire population in 1999. We can, therefore, expect that the social security system, especially the universal pension scheme based on social insurance, has some positive impacts on the reduction of poverty and inequality. This paper, however, raises doubt as to the conventional wisdom and thus reviews the developmental process of the Korean social security system for the aged. It was found that the dominant ideological controversy revolved, not around universalism versus selectivism, but around the option between developmentalism and other strategies. Our empirical analysis showed that the public pension had little impact on the reduction of poverty and inequality, particularly in comparison with advanced welfare states. This is not surprising at all, since poverty eradication and redistribution were not major objectives of the Korean social security system. The controversy between universalism and selectivism was relatively unfamiliar in the policy process of the Korean social security system. Even though the redistributive effect is getting larger as the National Pension system becomes mature, the developmentalist model has been proved to be a more useful tool for explaining the limited role of Korean social security.     

Comparing the Pension Promises of 30 OECD Countries

This paper takes a microeconomic approach to compare prospective pension benefits in the 30 OECD countries. It shows entitlements gross and net of taxes and social security contributions for male and female single workers based on 2002 pension rules and parameters. The models cover all public and private mandatory sources of retirement income for full‐career private‐sector workers across a broad earnings range. The paper shows that average earners in OECD countries can expect a post‐tax pension of about 70 per cent of their earnings after tax. The average minimum retirement benefit is just under 29 per cent of national average earnings.     

Ethnicity and Occupational Pension Membership in the UK

Reflecting a relatively low‐value Basic State Pension, occupational pensions have historically been a key aspect of pension protection within Britain. Existing research shows that minority ethnic groups are less likely to benefit from such pensions and are more likely to face poverty in later life, as a result of the interaction of their labour market participation and pension membership patterns. However, the lack of adequate data on ethnic minorities has so far prevented the direct comparison of different ethnic groups, as well as their comparison to the White British group. Using data from the UK Household Longitudinal Study, this article explores patterns of employment and the odds ratios of membership in an employer's pension scheme among working‐age individuals from minority ethnic groups and the White British population, taking into account factors not used by previous research, such as one's migration history and sector of employment (public/private). The analysis provides new empirical evidence confirming that ethnicity remains a strong determinant of one's pension protection prospects through being in paid work, being an employee and working for an employer who offers a pension scheme. However, once an individual is working for an employer offering a pension scheme, the effect of ethnicity on that person's odds of being a member of that scheme reduces, except among Pakistani and Bangladeshi individuals for whom the differentials remain. The article also provides evidence on the pension protection of Polish individuals, a relatively ‘new’ minority group in the UK.     

The gender gap in pensions in Latin America

Lower female lifetime labour market participation rates, greater interruptions during their working lives, and wage gaps contribute to create gender gaps in pensions at the time of retirement. The design of social security systems may reinforce or attenuate these gaps. This article provides new evidence on gender gaps in access to pensions and in pension income in four Southern Cone countries in Latin America and analyses their evolution between 2000 and 2013, showing significant improvements in both gaps, with differential patterns by countries. The decrease in the gender gap in pension income has been particularly significant in Argentina and Brazil. In both cases, the largest increases in pension values during the period correspond to the lowest income percentiles, where women are overrepresented. The application of redistributive policies in these countries, aimed at reducing poverty and inequality but not necessarily focused on gender equity, has had positive and probably unintended consequences in terms of reduction in gender gaps in pensions.     

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.     

Saving public pensions: Labor migration effects on pension systems in European countries

European countries have experienced population aging and consequent pressure on public pensions. Some European countries, therefore, have welcomed migrants, expecting that the inflow of people will ease the demographic and fiscal problems. It is important to ask if this policy approach has had the intended effects. This paper examines the effects of labor migration on public pension systems. Using error correction models (ECMs) with cross-country time-series data on European countries from 1981 to 2009, this analysis demonstrates that labor migration has deterred the reduction of public pension benefit levels and government expenditure on pension as well as the expansion of private pensions. This implies that labor migration eases the pressure on public pension systems. Migration contributory effects have been larger in countries with Bismarckian pension systems because those countries have experienced greater pressure on public pension systems than other countries.     

The Politics of Public and Private Pension Generosity in Advanced Democracies

The quantitative strand of social policy research suffers from a triple deficit: analyses of aggregate expenditure dominate, most of the few studies of replacement rates focus on unemployment or sickness benefits while pensions are excluded, and the interdependence between public and private pension plans is often ignored. This article addresses the said deficits, first, by discussing the pension sectors' theoretical peculiarities and by proposing two hypotheses: one on the role played by political parties in implementing public pension retrenchment, and the second on their role in extending private pension plans. Second, the article presents regression results of public pension replacement rate changes in 18 developed democracies. The findings show considerably smaller cuts to pensions than to unemployment or sickness benefits, and striking differences regarding partisan effects between the sectors. Lastly, the article assesses partisan effects on private pension plans, detecting some rather surprising effects. Most noteworthy is the fact that those parties which reduced public pension generosity during the 1990s (i.e. Social Democrats) cannot claim responsibility for compensating these cuts by eliciting higher private engagement.     

POPULATION AGEING AND THE PUBLIC PURSE: AUSTRALIA IN COMPARATIVE PERSPECTIVE

A comparative analysis of three decades of OECD public spending change is used to test propositions concerning the likely consequences of population ageing for public expenditure development in coming years. The World Bank and the OECD Secretariat suggest that population ageing has a direct impact on public expenditure through increased spending on pensions, health care and services for the elderly; and an indirect impact through increasing levels of public indebtedness. The analysis here suggests that only the pensions effect is supported by available comparative evidence and that, even here, the relationship is weaker than often implied in the population ageing literature. The vulnerability of different nations to problems arising from population ageing varies widely, with Australia among the least vulnerable.     

The performance of social security contributory and tax‐financed pensions in Central America,and the effects of the global crisis

Over the last 30 years, Latin America has pioneered structural pension reforms. This article focuses on a representative regional sample of seven Central American countries with diverse levels of development (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) studying contributory and tax‐financed pensions as well as recent pension reforms. It comparatively assesses system performance regarding five social security principles: unity; universal coverage; adequacy of benefits; equal treatment, solidarity and gender equality; and financial sustainability. It also evaluates the impact of the world crisis on these pension systems, highlighting the differences between public and private pensions, and extracts lessons and suggests policies for the future.     

Income redistribution in 20 countries over time

In most OECD countries, the gap between rich and poor has widened over the past decades. The present study analysed whether and to what extent direct taxes and social transfers contribute to this trend. The study contributes to the literature by disentangling several parts of fiscal redistribution in a comparative setting. We used micro‐data from the Luxembourg Income Study to examine household market inequality and redistribution from transfers and taxes for 20 countries from the mid‐1980s to the mid‐2000s. The contribution of each programme was estimated using a sequential accounting budget incidence decomposition technique. We observed a sizeable increase in primary household inequality, but tax‐benefit systems have offset two thirds of the average increase in primary income inequality. The public old‐age pensions attributed 60 per cent to the increase in redistribution, while social assistance accounted for 20 per cent. Direct taxes slowed down redistribution by 16 per cent.     

A State‐centred Explanation of the Finance‐Pension Nexus: New Zealand's Pension Reforms as a Typical Case

This study analyses the decision‐making processes that led to the introduction of the New Zealand Superannuation Fund (a public pension reserve and investment fund), as well as the KiwiSaver Scheme, which is New Zealand's first soft‐compulsory private pension scheme. Why and how are governments engaged in the development of funded pensions? These are the questions this study addresses. In analyzing the finance‐pension nexus in New Zealand, this article adopts a state‐centric approach. It argues that pension funding reforms are shaped by state officials who pursue their own motives because policymakers frame funded pensions as an instrument for achieving broader fiscal, economic and financial policy outcomes. Because New Zealand is a typical case of a state‐centric explanation, a study of its pension funding reforms helps in finding causal links between finance and pensions.     

Shifting the Pension Mix: Consequences for Dutch and Danish Women

All European countries are aiming to reform their pension systems in line with two conceptual ideas: firstly, that systems should combine public, occupational and private pensions; secondly, that entitlements should be individualized. The Dutch and the Danish pension systems already consist of these three different pensions with relatively individualized entitlements and in a way form an ideal type of pension system. However, these systems are far from ideal since they are deeply gender biased. The positive effects of citizenship‐based state pensions conceal the negative ones. In addition, recent developments in the combination of the pension schemes counteract the positive effects. Given the male‐oriented norm when it comes to full pension entitlements, and given the fact that life courses are still gendered, these countries’ systems and developments have negative effects for women.     

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.     

Reforming against all odds: Multi‐pillar pension systems in the Czech Republic and Romania

Attempts to replace pay‐as‐you‐go pension schemes with private funded systems came to a halt in Central and Eastern Europe after 2005. However, more recently, the region has witnessed two belated reformers: the Czech Republic and Romania. Both countries decided to partially privatize pensions despite the rising tide of evidence concerning the challenges associated with the policy. We argue that while part of the domestic political elite remained supportive of private funded pensions, the difficulties experienced by earlier reformers and reduced support from International Financial Institutions led to the adoption of small funded pension pillars. Such cautious attempts at privatization might become more common in the future as large reforms have proven politically unsustainable.     

State Income Inequality and Presidential Election Turnout and Outcomes*

Objective. This study examines the links among income inequality, voter turnout, and electoral choice at the state level in recent presidential elections. Methods. We introduce two new state‐level ecological data sets, estimated annual Gini coefficients of income inequality from 1969 to 2004 and a measure of income segregation across Census tracts within states in 1999. We test for associations among inequality, turnout, and party preference with cross‐sectional, fixed‐effects, and multilevel analyses. Results. The cross‐sectional effect of inequality on voter turnout and electoral choice is ambiguous. However, a fixed‐effects analysis links higher income inequality to lower voter turnout and also to a stronger Democratic vote. Multilevel results indicate that higher levels of economic segregation likewise are associated with depressed turnout, after controlling for individual voter characteristics and for state‐level income.