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The Role of the Government in Creating or Enhancing the Access to Funded or Unfunded Pensions in the Modern Welfare State

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The Future of Pension Plans in the EU Internal Market

Part of the book series: Financial and Monetary Policy Studies ((FMPS,volume 48))

Abstract

Due to ageing, governments have put into place parametric pension reforms during the last two decades. Consequently pension systems have become extremely complicated. Whether statutory, occupational or personal all pension forms are remarkably difficult to understand in depth. Nonetheless this huge complexity people are connected to their national pension system due to the existing underlying pension concepts. Each country possesses thus a unique own national pension identity. Every national pension landscape is created by or composed of the various pension forms occurring and operating concurrently, resulting in an aggregate pension concept that is tailored to a specific national context. It is this uniqueness that makes transposition of reforms from one country to another so complicated or at least deeply problematic. Changes from PAYG to funded schemes are therefore far from self-evident to be successful.

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Notes

  1. 1.

    Roels (2010), pp. 1–23.

  2. 2.

    Schmähl (2000), pp. 195–207; Davies (2000), p. 114.

  3. 3.

    Peemans-Poulet (1995), pp. 29–65.

  4. 4.

    Banyar (1991), p. 58.

  5. 5.

    Hirose (2011), p. 5.

  6. 6.

    Aaron (1966), pp. 371–374.

  7. 7.

    Sometimes it is also refered to as the Samuelson scenario. This refers to Paul Samuelson who teached Aaron in the 1960s. See for example: Banyar (1991).

  8. 8.

    Gollier speaks about the financial efficiency in this respect, while the economic efficiency also refers to the role of the pensionners as consumers. Gollier (1989), pp. 285–293.

  9. 9.

    Bt. Pt = c. Wt. Lt. (1 + r) = c. W0. L0. (1 + m). (1 + l) Whereby: B = average amounf of pension; P = number of people eligible for a pension; c = contribution rate; W = the average salary; L = working population; 0 = period of pension accrual; t = period of payment of pensions; r = rate of return over period 0 to t; l = growth in the working population between periods 0 and t; m = growth of the average salary between period 0 and t.

  10. 10.

    Aaron (1966), p. 93.

  11. 11.

    Deleeck (2000), p. 16.

  12. 12.

    Hemming (1994), p. 561.

  13. 13.

    Correct information and transparency about cost and charges are just one element in this respect but is happens to be a rather thorny and difficult subject, see on this matter: OECD, “Pension costs in the accumulation phase: policy options to improve outcomes in funded private pensions” OECD Working Party on Private Pensions, Paris, OECD 2018, 34 p.

  14. 14.

    Ferreiro and Serrano (2012), pp. 317–323.

  15. 15.

    OECD (2018), pp. 19–20.

  16. 16.

    Worth reading in this respect is: Hoff (2015), 82 p.

  17. 17.

    Behrendt (2000), pp. 3–26; Chand and Jaeger (1996), 42 p; Orszag and Stiglitz (1999), 46 p.

  18. 18.

    On the link between social justice and social law, see: Stroobant (2018), pp. 641–665.

  19. 19.

    This also shifts the intergenerational transfer or redistribution that is classically attributed to PAYG. See also: Davies (2000), p. 114. Davies concludes even that funded pension schemes may incur the same intergenerational effects as unfunded schemes (pg. 118–119).

  20. 20.

    For an inspiring text, see Schokkaert and Van Parijs (2002), pp. 491–515.

  21. 21.

    Bovenberg and Nijman (2016), p. 289; Gelissen (2001), pp. 495–523.

  22. 22.

    For an interesting view, see: Ebinghaus and Wiss (2011), pp. 15–28.

  23. 23.

    For a detailed analysis on the underlying risks related to investment in DC, DB or hybrid schemes, see: Ghilarducci (2009), 127 p.

  24. 24.

    Mesa-Lago (2009), pp. 602–617.

  25. 25.

    From a broader perspective on this identiy idea, see: Morris (2014), pp. 14–24; Van Oorschot et al. (2012), pp. 181–197.

  26. 26.

    In Belgium for example a structural reform of the pension system was proposed in 2014. Although governments wanted to reform, it never succeeded and this was due to the shift in pension identity.

  27. 27.

    This is recognized even in countries such as the Netherlands who have developed pension schemes that are very close to the so-called three pillar model. E.g. Jacobs (2017), p. 4.

  28. 28.

    World Bank (1994), 402 p. Since the mid-1990s, the CEE countries have carried out structural reforms of their pension systems. Notably, several countries have introduced a Chilean-type of mandatory, privately managed pension system (the so-called second-pillar pension system). The CEE countries that implemented this type of pension system include Hungary (1998), Kazakhstan (1998), Poland (1999), Latvia (2001), Bulgaria (2002), Croatia (2002), Estonia (2002), the Former Yugoslav Republic of Macedonia (2003), the Slovak Republic (2005), and Romania (2008) (the numbers in brackets indicate the years of implementation). As these countries had pre-existing state pension systems, the reforms resulted in scaling down the state pension systems and partially replacing them with privately managed individual savings accounts. At the same time, the state pension systems (now called the first-pillar pension systems) were also reformed by changing some key scheme parameters (e.g. the extension of the qualifying period for pensions, the increase in the pensionable age, and the transition from wage indexation to price indexation). Some countries (including Poland, Latvia, Sweden and Italy) introduced notional defined-contribution accounts (sometimes referred to as non-financial defined-contribution accounts) for their state pension systems. The multi-pillar pension reform strategy advocated for in a seminal report by the World Bank (1994) played a very influential role in the policy debate. Hirose (2011), pp. 4–5.

  29. 29.

    The same applies for the wording of “private” or “public” schemes. Most schemes are hybrid and the words “public” or “private” are contested and entails methodological research questions. See on this issue: De Deken (2013), pp. 270–286.

  30. 30.

    See for example the website of EIOPA with all possible variants in occupational schemes.

  31. 31.

    For a very good and comprehensive overview of the role of the world bank in the promotion of the three pillar model, see Orenstein (2008), 216 p.

  32. 32.

    Some European regions in Europea such as Flanders in Belgium, Catalonia in Spain or Trentino Alto Adige in Italy have regionally develop supplementary funds for certain employees or civil servants.

  33. 33.

    The lack of social consensus in the pension reform process of many CEE countries raised for example serious concerns. A well-informed and participatory reform process is critical for making rational decisions based on broad consensus. Yet social dialogue was weak or sometimes absent in the pension reform processes of many countries, and many workers’ and employers’ organizations attempted to search for ways to influence pension policy with only limited success. Hirose (2011), pp. 4–5.

  34. 34.

    www.agirc-arrco.fr

  35. 35.

    This includes all forms of actual savings including e.g. homes (mortgages) or cars.

  36. 36.

    Nonetheless legal protection of savings amounts is a prerogative for most Western countries. Savings are seen as forms of property requiring adequate protection.

  37. 37.

    Ellis et al. (2014), p. 123.

  38. 38.

    For an interesting analysis, see: Jaime Castillo (2013), pp. 390–405.

  39. 39.

    Heemskerk et al. (2016), p. 340.

  40. 40.

    Three judgements were made on the 21 September 1999 by the ECJ in this respect (Brentjens’ (C-115/97, C-116/97 and C-117/97, ECR 1999 p. I-6025), Albany (C-67/96, ECR 1999 p. I-5751), Drijvende Bokken (C-219/97, ECR 1999 p. I-6121).

  41. 41.

    Wyper (2017), pp. 352–375.

  42. 42.

    Steinmeyer (2000), pp. 163–165; Davies (1994), pp. 29–42.

  43. 43.

    Peeters (2014), pp. 249–265.

  44. 44.

    OECD (2018), pp. 51–55; Ellis et al. (2014), p. 123; De Witte et al. (2009), pp. 151–175.

  45. 45.

    Exception being the citizenships pensions such as for example the AOW in the Netherlands.

  46. 46.

    Hoff (2015), 82 p.

  47. 47.

    Jacobs (2017), p. 7.

  48. 48.

    Stevens (2017), pp. 98–117.

  49. 49.

    See for a very detailed analysis on the US but with many similar valid lessons for other countries: Stevens (2017), pp. 98–117.

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  1. Law Faculty KU Leuven, Leuven, Belgium

    Yves Stevens

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  1. CIDEEFF - Center for European, Economic, Financial and Tax Law Research, University of Lisbon, Faculdade de Direito de Lisboa, Alameda da Universidade, Lisbon, Portugal

    Nazaré da Costa Cabral  & Nuno Cunha Rodrigues  & 

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Stevens, Y. (2019). The Role of the Government in Creating or Enhancing the Access to Funded or Unfunded Pensions in the Modern Welfare State. In: da Costa Cabral, N., Cunha Rodrigues, N. (eds) The Future of Pension Plans in the EU Internal Market. Financial and Monetary Policy Studies, vol 48. Springer, Cham. https://doi.org/10.1007/978-3-030-29497-7_4

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