Pension systems in south-eastern Europe: what worked and what did not

Abstract

AbstractMany south-east European states made the transition from socialist to market economies. All described here had to reform their pension systems to match the new context in which these operated. The experiences of 10 countries are reviewed – seven of which were once part of Yugoslavia. Some countries’ reforms were more radical than others. Five of them merely adapted the Bismarckian systems they had inherited; four others adopted the “three pillar” model that the World Bank had been propagating. One went further than that. The four who followed World Bank model were often forced to backtrack. Whatever the longer-term benefits, they generated their own shorter-term fiscal problems. Nonetheless, the most radical reformer gives some indications of possible ways forward. The south-eastern European states do not have financial markets that can support capitalised/funded pension systems. Nor do they have the resources to pay proportional pensions that, at the same time, keep retired people out of poverty. The article suggests that their governments should concentrate upon improving economic performance to satisfy longer term aspirations and on ensuring that pensioners are able to live properly if not luxuriously by using tax-financed transfer measures. Provision above this level can be secured through savings plans, but it must be accepted that the investments to secure those savings will have to be made abroad.