The similarity of European pension systems in terms of OMC objectives: A cross‐country study

Abstract

AbstractFor several decades, pension systems across the world have been undergoing reforms. The main reasons for this are demographic changes and increasing life expectancy. To make these reforms more effective and ensure that they are based on the best benchmarks, the European Union (EU) has introduced the Open Method of Coordination (OMC) in the field of pensions. This study investigates whether European pension systems have become more similar and convergent in terms of the three main objectives of the OMC: adequacy, sustainability, and modernization of pensions. Our methodology is based on multivariate statistical analysis, and employs synthetic indicators as well as agglomerative hierarchical clustering. We analyze 27 countries in the years 2005, 2010, and 2015. The article contributes to the existing literature on pension reforms through investigation of the convergence of EU pension systems in terms of the three OMC objectives, in order to evaluate the effectiveness of this public policy concept. Our approach differs from that generally found in the literature, especially in terms of the methodology employed. The results support the view that the OMC is not an effective means of making European pension systems more convergent and better in terms of adequacy, efficiency, and modernization. Any improvement in OMC performance in the field of pensions, even if observed, is not as significant as expected.