Abstract
Common (neoliberal) wisdom warns against the detrimental effects of demographic changes and fiscal pressures on traditional (both defined-benefit and public) pensions and urges a paradigm shift towards defined- contribution plans and personal retirement accounts. This paper examines these claims, promoted by the OECD and World Bank, among others, by comparing the experiences of two OECD members—Israel and Ireland. While Ireland, one of the founders of the OECD, has pursued typical neoliberal policies of retrenchment, Israel—the newest member of the OECD—has taken a more sinuous path, reversing some retrenchment and eventually making pensions mandatory and almost doubling employer contributions to them. The outcomes of these policies seem to be far more positive in Israel than in Ireland, both in terms of their effects on retirees and workers, as well as their impact via aggregate demand on the overall economy, particularly in the aftermath of the Great Recession.
Highlights
Pension policies are often at the forefront of political and economic debates, even more so following the largest recession since the Great Depression
This paper examines these claims, promoted by the Organization for Economic Cooperation and Development (OECD) and World Bank, among others, by comparing the experiences of two OECD members—Israel and Ireland
The U.S has made the earliest shift, increasing the ratio of occupational-plan members covered by a DC plan from 32% in 1980 to 71% in 2003; the same ratio increased in Canada from 14% in 1993 to 24% in 2003 and in Ireland from under 40% in 1999 to 50% in 2005; coverage under DB private-pension schemes in the UK dropped from 23% in 1998-1999 to 12% in 2002-2003; and by 2006, both of Sweden’s largest occupational pension plans have been fully converted to defined-contribution [1]
Summary
Pension policies are often at the forefront of political and economic debates, even more so following the largest recession since the Great Depression. As well as the accompanying policy prescriptions—in light of the evidence, using a comparative study of two different country experiences within the OECD membership. While some countries such as Ireland have followed the narrow (and austere) path to salvation, as it were, others such as Israel—the OECD’s newest member—have gone through a more sinuous process, facing various pressures and finding a middle-ground with the active involvement of labor. The rest of the paper proceeds as follows: Section 2 examines pension policies in the OECD, both as recommended in its latest publication as well as in practice, comparing the experience of Israel, its newest member, with that of Ireland, one of the original founders.
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