Elephants on the move. Patterns of public pension reform in OECD countries

Abstract

Among OECD countries there are two clusters of old-age security systems: (1) ‘Social insurance’ countries had, by the end of the 1960s, fashioned the core of old-age security as public, contributory, earnings-related and unfunded insurance schemes; (2) a diverse collection of countries that, after 1970, topped up their basic pension arrangements with funded occupational pension schemes with (almost) universal coverage. ‘Social insurance’ countries, on which this essay focuses, reveal at least six common trends in pension reform, all about improving the financial sustainability of public schemes. Although the repertoire of incremental adjustment strategies is quite limited, policy changes since the early 1980s have not led to a clear convergence among ‘social insurance’ countries (or across the two clusters). Their original diversity has been somewhat diminished, but it has for the most part merely taken a different form. Public pension reforms regularly harmed (future) beneficiaries. Nevertheless, most reforms were actually based on broad political consensus. The success of attempts to introduce retrenchment policies depends on prior negotiation with – and support obtained from – collective actors above and beyond a simple parliamentary majority. This peculiar prerequisite ensures success in the sense of a sustained implementation of the measures taken and of actual improvement in public trust in ‘reliable’ pension schemes.

Retirement as an effect of employer-employee relations

“…A wide range of literature also focuses on the system perspective, especially on the influence of pension system regulations on individual preferences (Hanushek, Maritato 1996;Hinrichs 2009;García-Pérez, Jiménez-Martín and Sánchez-Martín 2013;Holzmann 2013). Very often both these levels are combined in the analysis.…”

The Reform of Bismarckian Pension Systems : A Comparison of Pension Politics in Austria, France, Germany, Italy and Sweden

“…Pension arrangements of the Bismarckian type are particularly vulnerable to the economic and demographic pressures sketched above (Hinrichs 2000a). By the same token, the national pension systems under study share at least four problematic features.…”

“…Broadly speaking, we can identify two distinct models of pension provision, often referred to as the Bismarck and the Beveridge model (Myles and Quadagno 1997;Bonoli 2000;Hinrichs 2000a;Myles and Pierson 2001). Pension systems of the Beveridgian type are typically aimed at poverty prevention and provide either universal flat-rate or means-tested benefits.…”

“…As a consequence, pension arrangements in these countries have become more similar to the Bismarck model, which prevails traditionally in countries such as Germany, Austria, France and Italy. At the same time, countries belonging to the Bismarckian tradition have broadened the coverage of their pension systems and -at least partly -established elements of minimum protection (Hinrichs 2000a). Hence, the countries under study nowadays display a number of strong similarities concerning the basic set-up of their pension edifice: the (quasi) universal character of social insurance pensions, the integration of the earnings-replacement function into the public pillar and hence an only limited significance of private and occupational pensions, the strong reliance on wage-based contributions and the relative dominance of pay-as-you-go financing within the overall system of old-age provision.…”

“…What is more, a capital stock within the public pension system may also serve to distribute the fiscal burden resulting from the demographic shock more evenly over time and across generations. By gradually melting off the accumulated reserves at the time when the demographic burden hits its peak the future increase in contribution rates can be kept lower than would be necessary otherwise (Hinrichs 2000a). Moreover, as opposed to private or occupational pensions, a fully-funded component within the public pension system enables pension policy-makers to maintain the redistributive character of social policy.…”