Pensions after the financial and economic crisis: a comparative analysis of recent reforms in Europe

 “This paper look at the impact of the economic and financial crisis on pensions policy across Europe, and assesses the first measures proposed and/or introduced in four EU countries. France and Sweden are typical examples of social insurance systems, while Poland and the UK are examples of multipillar systems.” writes David Natali in Pensions after the financial and economic crisis: a comparative analysis of recent reforms in Europe on etui.org.

The first part summarizes the key features of the economic and financial crisis and the consequences on both the sustainability and adequacy of public pension schemes and private pension funds. In the case of first-pillar pension schemes, the short-term effects have been limited. While PAYG schemes, with the exception of public reserve funds, remain largely immune to short-term financial crisis, long-term effects may well prove problematic and lead to further adjustments to secure the financial viability of systems. As for secondand
third-pillar schemes, fully-funded schemes have been more directly affected. Investment losses and negative rates of return have been massive and pension funds will inevitably suffer from this trend. Meanwhile, the impact of low interest rates is likely to exacerbate the strains on funded schemes.

The second part of the paper focuses on reform initiatives undertaken in the four countries. While the impact on different pension models naturally varies, some common trends have nonetheless been identified. On the one hand, all the countries under scrutiny have introduced short-term measures to grant additional protection for the elderly at risk of poverty, with more generous indexation and ad hoc benefits constituting the most evident attempt to improve old-age protection. On the other hand, measures have been introduced in an attempt to reduce the mid- and long-term financial tensions on public pension schemes while improving the regulation of pension markets.

All the countries under scrutiny have proposed and implemented a raising of the statutory retirement age, together with incentives for active ageing. This is a major difference compared to how national governments have generally reacted to economic crisis in the past in that there has been no systematic recourse to early retirement as a means of reducing unemployment (at least in the four countries under scrutiny).

The role of private pension funds has been at the core of a renewed and intense debate, with opposite strategies having been pursued in the four countries. Some countries, consistent with the pre-crisis reform path, have pursued the attempt to reinforce the public/private mix. This is the case of the three western European countries (France, Sweden and the UK). As such, the measures undertaken did not alter the system design but were primarily focused on further strengthening the systems’ sustainability, albeit at the expense of adequacy.

By contrast, Central Eastern countries (Poland in particular) have debated the opportuneness of reducing the role of private pension funds through the reduction of statutory contributions for private pensions with a parallel increase in those used for public pension schemes. This is not an isolated case among Central and Eastern European (CEE) states. Hungary, for instance, has recently re-nationalised private pension schemes.

While it is too early to provide an in-depth explanation of this ‘U-turn’ in CEE pensions policy, some initial insights may be proposed. As shown above, the economic crisis has had two main consequences in these countries: on the one hand, it has contributed to increased tensions on public budgets while, on the other, the crisis has served to exacerbate and draw attention to negative trends in the pensions market. All this has led to a more critical reading of the role of private pensions and much of the optimism that characterized welfare reforms in the 1990s has given way to a more negative assessment of the functioning of the public/private mix.

Read More @ :