The Future of Pension Plans in the EU Internal Market (eBook)

Contents 6
About the Editors 13
List of Figures 15
List of Tables 21
Introduction 23
1 General Description 23
2 On the Structure of the Book 25
Part I: Pay-as-you-go Versus Funded Pension Plans: Which Way to Better Address Common Challenges in the EU? 31
Old-Age Pension Systems: Characterization and Comparability 32
1 Introduction 32
2 Contributive Old-Age Pension Systems: Aspects to Analyse 35
2.1 Degree of Funding 35
2.2 Actuarial Fairness 42
2.3 Adjustment Methods to Financial Realizations 45
3 Comparison of Old-Age Pension Systems 47
3.1 The Unfunded Versus Funded System: An Example 47
3.1.1 Unfunded, Defined Benefits and Non-actuarial System 49
3.1.2 Funded, Defined Contribution and Actuarial System 50
3.2 Advantages and Disadvantages of Alternative Systems 51
4 Conclusion 54
References 55
What´s New in the Debate About Pay-as-you-go Versus Funded Pensions? 57
1 Introduction 57
2 Moves from PAYGO to Funded Schemes in Recent History 59
3 Economic and Financial Turbulence as well as Tight Public Finances Shed New Light on the Trade-off Between PAYGO and Funding 60
4 Pensions as an Actuarial Zero-Sum Game in the Aggregate, Whether Funded or Unfunded 63
5 Implications for the Transition from PAYGO to Funded 64
6 Dynamic Efficiency: Are Market Rates Larger than Growth Rates (r g)? 65
7 Are the Same r and g Variables Needed to Assess Dynamic Efficiency and to Compare Returns of PAYGO and Funded Pensions? 68
8 Secular Stagnation 69
9 Diversification of Risks 70
10 Conclusion 70
References 72
The Role of the Government in Creating or Enhancing the Access to Funded or Unfunded Pensions in the Modern Welfare State 74
1 Introduction 74
2 Funded or Unfunded: The Aaron Condition and Governmental Choices 75
3 Underlying Pension Notions and the Significance of Historically Embedded Pension Concepts: A National Pension Landscape Is D... 79
4 Governments Determining the Coverage Rate of Certain Pension Types Dispose of Several Tools in Their Kit 83
4.1 Level of Organization 83
4.2 Compulsion 84
4.3 Role of the Social Partners 87
4.4 Taxation 87
4.5 Labour Market Policy 88
5 Evolution: Background of a Silent Pension Pillar Implosion 88
6 Conclusion: Reforms on Coverage Require Trust 90
References 91
The Coverage of Occupational and Personal Pension Plans 94
1 Introduction 94
2 Occupational Pension Plans: Defined-Benefit (DB) Versus Defined-Contribution (DC) Pension Plans 95
3 Personal Pension Plans 98
4 Coverage of Funded and Private Pension Plans 99
5 Conclusion 101
References 103
Sustainability and Adequacy of Pension Systems Across the OECD: Shocks, Robustness and Policies 106
1 Introduction and Main Findings 106
2 Shocks to Pension Systems and Sustainability 108
2.1 Population Ageing Remains the Main Challenge to Pension Sustainability 108
2.2 Longevity Risk and Defined-Benefit Schemes 112
2.3 Investment Risks 114
3 Policies Favouring the Sustainability of Pension Schemes 115
3.1 Actuarial Neutrality 115
3.2 Automatic Adjustment Mechanisms 116
3.3 Adjustment of Benefit Levels 117
3.3.1 Pension Indexation 117
3.3.2 Adjusting for Life Expectancy Developments 117
3.3.3 Indexation and Revaluation Rules of Pensions 118
3.4 Buffer and Reserve Funds 118
3.5 Prudential Regulation and Investment Strategies to Preserve the Sustainability of Funded Schemes 119
3.6 Protecting Pension Assets of Old Workers 120
4 Policies Affecting the Adequacy of Pensions 121
4.1 Replacement Rates and Poverty 121
4.2 Public-Private Mix and Extending Private Pension Coverage 123
4.3 Preventing Early Retirement and Exit from the Labour Market 124
5 Concluding Remarks 125
References 126
Part II: The Capital Markets Union (CMU) and the Future of Pension Plans: Opportunities, Risks and Drawbacks 128
The Capital Markets Union: Saving for Retirement and Investing for Growth 129
1 What Is the Capital Markets Union About? 129
2 Retirement Saving and Long-Term Investment in Europe 131
3 A Need for Action? 136
4 What Has Been Achieved and the Way Forward 140
References 142
Sustainable Pensions for European Citizens: How to Close the Gap? 145
1 Introduction: The Challenge 145
1.1 Demographic and Labour Market Changes 145
1.2 Economic Environment 146
1.3 Learnings from Behavioural Economics 147
2 Complementary Private Pensions 149
2.1 Flexible, Adaptive Solutions 149
2.1.1 Nudging 150
2.1.2 Adapting to Personal Needs 151
2.2 Standardisation: Quality Features 152
2.2.1 Designing `Defaults´ and Standardised Elements 153
2.2.2 Investment Strategy 154
2.2.3 Linking Accumulation to Decumulation 156
2.2.4 Enforcing Quality Features 158
3 Conclusion 159
References 160
Welfare Gains from a Capital Market Union with Capital-Funded Pensions 162
1 Introduction 162
2 Model 164
2.1 Demographics 164
2.2 Households 165
2.3 Production and Labor Market Matching 166
2.4 Government Budget and Asset Market Clearing 167
2.5 Calibration 168
3 Simulations 168
3.1 Description of the Simulation Scenarios 169
3.2 Simulation Results 170
4 Summary and Concluding Remarks 175
References 176
SeLFIES for Portugal: An Innovative Pan European Retirement Solution 178
1 Introduction 179
2 Background on Portugal and the Challenge of Pension Security 180
3 Portugal: Attempts to Create a DC System 181
4 Background on Portugal´s Current Debt Issuance 183
5 SeLFIES as a Potential Solution 185
6 The Innovative SeLFIES Design 187
7 How SeLFIES Foster Self-Reliance and Work for Those not Financially Literate 188
8 Demand from Other Investors 189
9 Advantages for Governments 190
10 Additional Issues 191
11 Conclusion 192
References 193
The Pan-European Pension Product and the Capital Markets Union: A Way to Enhance and Complete the Economic and Monetary Union? 196
1 The Pan-European Personal Pension Product (PEPP) 196
2 The Portability of the PEPP and the Tax Obstacles 199
3 The Capital Markets Union and the PEPP 202
References 207
The Final PEPP or How to Kill an Important EU Commission Proposal 209
1 The Need for a Long Term EU Savings Product 209
2 The Final PEPP Text 210
3 Conclusion and Implications for the CMU Agenda 212
Deepening Financialization Within the EU: Consequences for Pension Regimes 214
1 Introduction 214
2 Financialization and its Key Features 216
2.1 Financialization as a Feature of Contemporary Capitalism 216
2.2 Financialization as an Analytical Device in Political Economy 218
3 The Capital Markets Union: Turning a Problem into a Solution 222
3.1 The CMU as a Resurrection of Finance 222
3.2 This Time Is Different? 225
4 Funding European Pensions 226
4.1 The History of PEPP in a Nutshell 227
4.2 Extending Funded Pensions in the EU: Puzzling 228
5 Private Funded and Pay-as-you-go Public Regimes: Complementary or Substitutes? 229
5.1 Voice and Exit in the Pensions´ Arena 231
6 Conclusion 233
References 235
Part III: Pension Plans and the European Pillar of Social Rights: A New Scope for the EU Social Policy? 237
Pensions at a Crossroad Between Social Rights and Financial Markets: Which Way to Be Chosen? 238
1 Introduction 238
2 The Multi-Pillar Approach: Mining the Origins and Contextualizing the Current Situation 240
2.1 Bismarckian Models as Implicit Inheritors of Ancient Occupational Plans 240
2.2 The World Bank Report of 1994 241
2.3 The Reforming Movement in Pension Systems from 1990s Onwards 242
2.3.1 Redressing Public Pension Systems 242
2.3.2 Strengthening the Role of Funded Occupational Pension Schemes and Increasing Incentives for Voluntary Retirement Saving 245
2.3.3 Paradigmatic Changes in the Current Pension Plans Environment: Risk Shifting from Social Rights to Individual Savings
3 Two Plausible Alternatives for Pension Plan Evolution: The Individual Insurance Model Versus the Universal Tax Financed Model 251
3.1 Two Different Alternatives, but the Same Drivers 251
3.2 First Alternative: The Individual Insurance Model and the Appeal of the Financial Markets 254
3.2.1 Characterization 254
3.2.2 The Appeal of the Financial Markets Versus the Danger of `Financialization´ Sustainable Finance as the Redemption of th...
3.3 Second Alternative: The Universal Tax Financed Model 258
3.3.1 Characterization 258
3.3.2 Universal Basic Income as an Exacerbation of the Universal Tax Financed Model 261
4 The Redesign of the Welfare of State and the Role of the European Union: Which Path to Be Chosen? 262
5 Concluding Remark 264
References 264
From Paris to Lisbon: The Ever-Changing European Social Policy Landscape 267
1 European Social Model(s) 267
2 From Paris to Rome 269
3 The Seventies and the First Social Action Program 270
4 The Single European Act and the White Paper 272
5 From Amsterdam to Lisbon 278
6 From Lisbon Back to Lisbon 279
7 Different Forms of Governance 281
8 Different Policy Instruments, Different Domestic Impacts 286
9 Concluding Remarks 288
References 291
Pension Reforms After the Crisis: Bringing Adequacy Back in the Domestic and EU Policy Equation? 294
1 Introduction 294
2 National Old-Age Pension Reforms Since the Great Recession: A Return to Adequacy or Damage Control? 296
2.1 Prolonging Working Lives: Confirmation of the Long-Term Trend Towards Maintaining the Sustainability of Pensions 298
2.1.1 Increasing Pensionable Ages 300
2.1.2 Early Retirement: Becoming a Remnant from Another Era? 301
2.2 Adequacy Safeguards as the Main Dimension of Adequacy Policy Reforms 303
2.3 Income Maintenance: The Neglected Dimension of Pension Adequacy Reforms? 304
2.3.1 Indexation Mechanisms 304
2.3.2 Promoting Supplementary Pensions 304
2.3.3 Extending and Improving Pension Rights to Specific Groups 305
3 The Evolution of the EU Discourse on Pensions During the Period 2010-2019 307
3.1 The Green and White Papers on Pensions 307
3.2 The Creation of the European Semester 308
3.3 The Barroso II Commission 309
3.4 The Juncker Commission 312
3.5 The European Pillar of Social Rights 314
4 Conclusions 316
References 317
How to Best Address Pension Adequacy and Financial Sustainability in the Context of Population Ageing: The Labour Market as a ... 322
1 Introduction 322
2 Demographic Change 323
3 Pension Reforms 324
4 Economic Versus Demographic Dependency 326
5 Impact of Labor Markets on the Economic Dependency Ratio: Case Study on Germany 329
6 Concluding Remarks 332
References 332
Pensions in the Fluid EU Society: Challenges for (Migrant) Workers 335
1 Introduction 335
2 Social Risk of Old-Age, Pension Systems and Non-standard Forms of Employment 338
2.1 Social Risk of Old-Age 338
2.2 Pension Systems 339
2.3 Non-standard Forms of Employment 341
3 EU Legislation on Pensions and its Appropriateness for Free Movement of Non-standard Migrant Workers and Self-Employed 343
3.1 Article 45 TFEU 344
3.2 Relevant EU acquis and Challenges in the Field of Social Security Coordination 345
3.3 Relevant EU Acquis and Challenges Regarding Supplementary (Occupational) Pensions 349
4 Combating Fraud and Error 353
5 Conclusion 355
References 356
Legal Acts 358