By Onorato Castellino, Elsa Fornero, Christina Benita Wilke

Pension reform has occupied and will continue to occupy an important place in the welfare state reform agenda on both sides of the Atlantic. In both the European Union (EU) and the United States (US) demographic forces in the form of an aging population and low fertility pose significant long-run fiscal challenges to traditional public pay-as-you-go (PAYG) systems. In addition, the pace of pension reforms in most EU countries has accelerated since the financial crisis in 2008 and the subsequent debt crisis, often adopting a mix of temporary short-term measures and structural long-term measures. Thus, economic and political forces in the past decades have been pushing countries in the direction of creating and/or maintaining mixed pension systems in which private pensions play a significant role alongside public pensions. In this paper, we focus on countries of the EU-15 that nicely depict this transition to private pensions for the “old Europe” as well as the US. We first provide a theoretical overview of pension system types in general before we depict the main development and trends of public pension systems and policies in Europe and the US. We find that countries that do not already have a well-developed private pension sector can reap benefits by implementing policies and structural changes that foster the development of a private pension sector. In contrast, countries that already have a true mixed system, relying on both public and private pension elements, need to ensure that such systems continue to provide secure and adequate retirement benefits. The paper concludes with a discussion on selected public policy options in order to improve coverage and contributions, ensure active participation and portability and successfully manage benefit risks.

Source: SSRN