POPRIE · Pathways of pension reform in Europe; Sweden, Italy, Poland and the UK in comparative perspective, since c.1990

Final Activity Report Summary - POPRIE (Pathways of pension reform in Europe. Sweden, Italy, Poland and the UK in comparative perspective, since c.1990)

This research project has evaluated the changing distributional principles and outcomes of pension systems in Europe. It has centred the analysis in four countries (Italy, Sweden, Poland and the UK), which belong to different 'families' or 'worlds' of welfare. This comparative approach has permitted the simultaneous evaluation of: (1) pension reform trajectories towards alternative distributional models across countries; (2) the impacts of original institutional design on reform choices; (3) the process of convergence of European welfare institutions and outcomes; and (4) the distributional impacts of recent reforms on future generations of pensioners, both in each country and in comparative perspective. The analysis shows that a shared pathway of reform has oriented pension systems across countries towards a new distributional model. Pension schemes have been separated in two layers embracing different distributional principles. The first layer aims to prevent poverty. It follows a means-tested and residual model, and provides tax-financed benefits to the retired poor. The second layer is the most important and the biggest one, and is often made of both private and public pillars. It promotes individual savings (either as 'real' or 'notional' accumulation) to finance future retirement annuities. In this layer, the level of benefits results from an actuarial calculus considering individually-made contributions and life expectancy. As a result, the benefits received by each individual over the lifetime equal the resources the same individual has paid into the system, reducing both risk-pooling and redistribution. Overall, the trend is towards the individualisation of pensions: a system where benefits depend more closely on the specificities of the individual's lifecourse; a more actuarial type of system where rights and resources are apportioned according to individual effort and redistribution is confined to the poverty-prevention function. This shared reform trajectory, however, does not necessarily mean convergence in system design, nor in prospective outcomes. Although pension schemes have moved in a similar direction, most reforms have operated incrementally, building on existing institutions, and reshaping them to adapt to the new distributional model. Some important differences tended to remain, compromising the specific outcomes that pension systems could produce in each country. Even in aspects where systems have by all means become similar (e.g. the stronger link between individual contributions and benefits), outcomes may also differ as a result of the different demographic and labour market structures existing across countries. In short, there is convergence in reform 'trajectories' rather than outcomes and in some specific institutional features (such as the role for private pension funding) rather than in the overall institutional structure. The project has also embarked in an attempt to quantitatively assess the impacts of reform using benefit algorithms derived from new pension rules to simulate the future level and distribution of benefits. At least three of the most important results should be mentioned. First, in line with other research from the European Commission and the OECD, results point to a significant reduction of public pension benefits for future generations of workers, which is sometimes partly compensated with benefits obtained from a newly created private pension pillar. Secondly, as a result of the greater importance of funded individual accounts, benefits have become more sensitive to the performance of the financial market, especially in countries where private pensions have a major role to play (such as in Poland and the United Kingdom). Thirdly, the stronger association between individual contributions and benefits means that individual labour market histories matter more than before to determine both eligibility for benefits and benefit levels. Indeed, one of the key policy challenges for the future will be to manage and control the impacts of the new (labour market and investment) risks that have gained importance with the individualisation of pensions.

Data: CORDIS, © European Union