PENSION REFORMS ACROSS EUROPE: challenges, institutions and innovation David Natali Facoltà R. Ruffilli Università di Bologna-Forli’ Observatoire social européen, asbl

Pensions in Europe, European Pensions David 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° Pillar Key role for supplementary pensions (2° and 3° Pillar) POVERTY PREVENTION Soviet Public Pillar MonopolyBENEFITS EQUALITY

Pension Models in Europe (end 1980s) 2° and 3° Pillar 1° Pillar Social Insurance Multi-pillarSoviet

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 reforms ModelI PillarII e III Pillar Social Insurance Cost-containmentTax incentives for voluntary pension funds More binding participation Multi-pillarCost-containment and protection of new risks Widening of supplementary schemes Reform of benefit structure (defined- contribution) Post-SovietIncreased spending Followed by Cost-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 ? ModelInstitutional design Policy 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 savingsPrivate/ Public Social Insurance in transition Multi-pillar (Voluntary with increased ‘soft- compulsion’) Salary savingsPublic/ Private

Convergence/Divergence II and III Pillar I Pillar Social Insurance in transition Multi-pillar I 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-reformPost-reform MenWom.MenWom. France Italy Poland Sweden UK30.8 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 Pensions David Natali, P.I.E. Peter Lang, Brussels