PENSION REFORMS ACROSS EUROPE:
challenges, institutions and innovation
David Natali
Facoltà R. RuffilliUniversità di Bologna-Forli’
Observatoire social européen, asbl
Pensions in Europe, European PensionsDavid Natali, P.I.E. Peter Lang, Brussels
Pension Reforms in Europe
Challenges Population ageing Budgetary strains New social risks EU integration
Institutions inherited from the past European pension models
Innovation (Convergence/Divergence?) Public/Private Mix Reforms
Pension Models in Europe (end 1980s)
Institutional design (Public/private Mix)
Policy Goals
Social Insurance Major role of the 1° Pillar (PAYGO)Minor role for supplementary pensions (2° and 3° pillar)
INCOME MAINTENANCE
Multi-pillar Basic role of the 1° PillarKey role for supplementary pensions (2° and 3° Pillar)
POVERTY PREVENTION
Soviet Public Pillar Monopoly BENEFITS EQUALITY
Pension Models in Europe (end 1980s)
2° and 3° Pillar
2° and 3° Pillar1° Pillar
1° Pillar
1° Pillar
Social Insurance
Multi-pillar Soviet
Convergence or Divergence between pension systems ?
Persistent divergence ‘Regime theories’
(Esping-Andersen; Pierson and Myles)
Renewed convergence ‘the spread of the multi-pillar paradigm’ (Bonoli;
Bonker; Arza) ‘Passive privatization’ (Bonoli et al; Bridgen and
Meyer) ‘Active or coordinated privatization’ (Leisering;
Barr)
Passive or Active Privatization?
Passive Privatization
‘to cut public protection against social risks without the parallel launch of an effective alternative provision’ (retirement-savings gap)
the ‘residualization’ of the role of the state
Passive or Active Privatization?
Active Privatization
the state reduces the direct provision of social benefits but maintains an active role in regulating and/or subsidizing the activity of non-governmental actors
New policy instruments for the state
Passive or Active Privatization?
extent of compulsion, voluntary or mandatory participation to supplementary pension funds
allocation of administration tasks, collecting contribution, paying benefits, managing state pension funds in competition with private funds
Last wave of reformsModel I Pillar II e III Pillar
Social Insurance
Cost-containment Tax incentives for voluntary pension funds
More binding participation
Multi-pillar Cost-containment and protection of new risks
Widening of supplementary schemes
Reform of benefit structure (defined-contribution)
Post-Soviet Increased spendingFollowed byCost-containment
Mandatory participation
Convergence or Divergence?
Convergence
Public pensions’ retrenchment
Increasing role for supplementary private schemes
Progressive abandoning of the single-pillar design
From income-maintenance to salary-savings
Towards one single European model ?Model Institutional
designPolicy goal (Public pillar)
Earnings-related schemes
Multi-pillar I generation
Multi-pillar(mandatory/quasi-mandatory)
Poverty-prevention
Private
Multi-pillar II generation
Multi-pillar(Mandatory)
Salary savings Private/Public
Social Insurance in transition
Multi-pillar(Voluntary with increased ‘soft-compulsion’)
Salary savings Public/Private
Convergence/DivergenceII and III Pillar
II and III Pillar
II and III Pillar
I Pillar
I Pillar
I Pillar
Social Insurance
in transition
Multi-pillarI gen.
Multi-pillar II gen.
Pre-reform Public/Private Mix
Post-reform Public/Private Mix
Passive or Active Privatization ? extent of compulsion
Multi-pillar I gen., (UK, auto-enrolment); collective bargaining
Multi-pillar II gen. (PL, EE) mandatory participation
Social Insurance in Transition (IT, BE; Sl) progressive abandoning of voluntary participation (auto-enrolment; collective bargaining)
Passive or Active Privatization ? administration tasks
Public collection of contributions (SWE, PL; EE)
Monitoring, collection of information (SWE, UK, PL)
Competition between private and public funds (default fund) (SWE, UK)
Future Risks: social adequacy of public/private mix
Gross replacement rates for workers
Pre-reform Post-reform
Men Wom. Men Wom.
France 64.7 51.2
Italy 90.0 80.0 67.9 52.8
Poland 62.2 57.3 61.2 44.5
Sweden 78.9 62.1
UK 30.8 30.8
Source, OECD (2007)
Future Risks: 3 scenarios for the future of pensions in Social Insurance systems
1. Transition to Multi-pillar systems Lower public protection will be supplemented by
widespread supplementary schemes (Multi-pillar system)
2. Transition towards the ‘Bismarckian Lite’ model, similar to that of the USA Lower public protection with uneven and limit private
pensions’ coverage
3. The future reverse of reforms introduced in the last twenty years
Pensions in Europe, European PensionsDavid Natali, P.I.E. Peter Lang, Brussels