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.     

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.     

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.     

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.     

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.     

Public/Private Pension Mix,Income Inequality and Poverty among the Elderly in Europe: An Empirical Analysis Using New and Revised OECD Data

Prior studies have suggested that higher public pensions are associated with lower income inequality among the elderly, whereas the reverse is true for private pensions. Van Vliet et al. ( 2012 ) empirically test whether relative shifts from public to private pension schemes entail higher levels of income inequality among the elderly using panel data from the OECD SOCX and the EU‐SILC databases. Contrasting earlier empirical studies using either cross‐sectional or time‐series data, they do not find evidence that shifts from public to private pension provision are associated with higher levels of income inequality or poverty among the elderly. The aim of the current article is to extend the analysis of Van Vliet et al. by: (1) adding additional countries; (2) adding additionally available years; and (3) using revised OECD SOCX data. In contrast to Van Vliet et al., we find that a greater relative importance of private pensions is associated with higher levels of income inequality and poverty among the elderly. A central explanation of the difference in conclusions stems from the revision of OECD SOCX data.     

I'm OK, You're (Not) OK: The Private Welfare State in the United States

The American welfare state has been premised on the mixture of substantial private, tax‐subsidized benefits rather than on more universalistic public benefits. That pattern is in some ways being undermined as private pension plans are increasingly going bankrupt and firms reduce the benefits they provide employees. On the other hand, however, the current Bush administration is attempting to enhance the private sector role by allowing individuals to invest at least a part of their social insurance contributions into private savings plans. These changes may in the end increase the role of the public sector as a regulator and underwriter at the same time that attempts are made to minimize public sector involvement.     

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.     

Partisanship,continuity, and change: Politics in Finnish unemployment benefit reforms 1985–2016

The apparent decline of partisan effects on social policies since the 1980s has encouraged the development of theories that challenge the traditional partisan politics theory. Although the new politics approach pointed to institutional path-dependence and to the unpopularity of radical retrenchment, recent research has highlighted shifts in electoral landscapes, differences in party systems and institutional contexts, and changing party-voter linkages. This in-depth case study contributes to debates on partisan effects by focusing on Finland, whose dualistic unemployment benefit system and institutional and political conditions provide an interesting case to analyse changing partisan effects. The aim is to explain, through qualitative policy analysis, why government partisanship has not had a significant effect on unemployment benefit levels since 1985. The explanations are different for earnings-related and flat-rate benefits. For the former, retrenchment efforts have seen a distinct partisan divide, but trade unions have thwarted most cutbacks; thus, although partisanship has not mattered much for policy outcomes, power resources have remained important as inhibitor of cuts. For the latter, parties that in the late 1980s still had differing priorities have since converged on policies emphasizing activation and work incentives. Universal flat-rate benefits have lacked political support and have been left to stagnate. The study suggests that one single theory is not sufficient to explain developments even in one single welfare policy—there are too many aspects to cover—not to speak of the entire welfare state consisting of an array of different schemes.     

A risky strategy: Reflections on the World Bank Report Averting the old age crisis

This article is a critical assessment of a report on pensions recently published by the World Bank. It takes issue with the report's assertion that public pension systems have failed both socially and economically, demonstrating that many of the shortcomings identified by the World Bank apply with equal or greater force to private systems. It argues that the strategy outlined in the report, involving the replacement of social insurance by mandatory savings schemes, would involve an unacceptably high degree of risk for workers and pensioners, that it would make old-age protection more costly, and that the transition would impose a heavy burden on the current generation of workers. The article concludes that a more efficient and less disruptive approach to the provision of retirement pension would be to focus efforts on measures to rectify design deficiencies and inequities in existing schemes.     

But is it ‘Fair'? The UK Coalition Government, ‘Fairness’ and the ‘Reform’ of Public Sector Pensions

The article analyses arguments for reform of public sector pension schemes by the UK Coalition government on the grounds that existing provision is ‘unfair’. Three dimensions of ‘fairness’ are discussed. That between public and private sector provision; between the costs to public sector employees and other taxpayers; and between members of public sector schemes. The article argues that there are serious weaknesses in the Coalition position on each of these dimensions of ‘fairness’. It suggests that these weaknesses are rooted in the discussion of public sector pensions in isolation from the overall pattern of occupational pension provision in the UK and that a more satisfactory analysis requires reference to principles of distributive justice.     

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.     

From Austerity to Austerity: The Political Economy of Public Pension Reforms in Romania and Bulgaria

This article discusses the trajectories of pension system reforms in two of the latecomers to the EU: Bulgaria and Romania. It finds that over the past two decades, the two countries pursued increasingly dissimilar public pension reforms for managing their respective public pay‐as‐you‐go pension systems. Using a political institutionalist theoretical framework, I argue that the divergence between the two cases is attributable to multiple factors. First, different temporary political compromises between national and international actors generated reforms that retrenched public pensions and introduced mandatory private accounts. Second, pension reforms often had unintended consequences that limited their intended impact. Third, incremental adjustments introduced by governments in response to political pressures caused alternating phases of austerity and generosity that catered to different constituencies in each country. In Romania, reform outcomes amounted to a moderately generous pension system, financed through relatively high contribution rates with a small funded component, while in the case of Bulgaria, the pension system evolved into a meagre programme, financed through low contribution rates and a larger private pillar.     

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.     

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.     

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.     

Regulation and supervision of pension funds: Principles and practices

This paper examines the current principles and practices of pension fund regulation and supervision around the world. First an overview of the main approaches in OECD and non-OECD countries and the most important issues and their relevance for different types of pension plans will be given. Then the paper will focus on a selection of issues which are the subject of intense debate at the moment, particularly in the Latin American context: the imposition of quantitative restrictions on pension fund investments, state guarantees for private pensions, and fee and cost controls.     

Partisan ideology,veto players and their combined effect on productive and protective welfare policy: how the left still matters after all?

Quantitative analysis of the question whether ‘parties still matter’ has largely focused on the dynamics of aggregated expenditure-based dependent variables or protective welfare policies such as unemployment, sickness and family benefits. This article develops a series of pooled time-series cross-section regression specifications predicting changes in disaggregated protective welfare policies alongside productive welfare policies, namely family services, active labour market programmes and public education, across 17 Western democracies (1971–2010). In so doing, it employs the latest Comparative Manifesto Project [Volkens, A., P. Lehmann, N. Merz, S. Regel, and A. Werner. 2014. The Manifesto Data Collection. Manifesto Project (MRG/CMP/MARPOR). Version 2014b. Berlin: Wissenschaftszentrum Berlin für Sozialforschung (WZB). Accessed January 2015. https://manifestoproject.wzb.eu/information/information] and Veto Player [Jahn, D., T. Behm, N. Düpont, and C. Oberst. 2012. Parties, Institutions & Preferences: Veto Player (Annual), Version 2012–02. Accessed January 2015. http://comparativepolitics.uni-greifswald.de/data.html] data to explore the effect of the ideological position of prime ministers’ parties, veto players and their combined effect on these welfare policy areas. The article confirms that Left and Right governments ceased to make any substantive difference for protective welfare policies from the early 1980s onwards. Yet, it also finds that positive Left partisan effects have largely persisted for productive welfare policies. In the era of global competition, Left party ideology has continued to be an important factor in realising a social investment perspective in practice; in terms of the expansion of family services, its effects have been contingent on the veto power Left prime ministers faced.     

Income Security During Sickness Absence. What Do British Middle‐classes Do?

Income maintenance during sickness absence is an under‐researched field within social policy analysis, and yet it is conducive to exploring the interplay between statutory, corporate and private forms of income protection. Drawing on original qualitative interview data, the article shows that British middle‐class couples largely ignore or dismiss public provision, which is due to a relatively low level of sickness benefits, but also based on misconceptions about social rights and the role of employers as mandatory (and voluntary) sick pay providers. Despite a considerable degree of mistrust, mortgage‐related private sickness insurance mattered to some extent, although this does not necessarily reflect policyholders’ strategic choices vis à vis current household needs for income security. Other potential sources of income replacement, such as savings, are relied on much less. In general, the analysis shows a heavy middle‐class reliance on, and strong confidence in, employer‐based sickness pay. This finding may be contrasted with questions about the sustainability of voluntary corporate provision, as well as its capacity to provide income security for the workforce as a whole.