Abstract
The policy-makers’ efforts to increase the role of voluntary pension systems observed in many countries reflect a more general tendency, which is the privatisation of social risks. The paper examines, from a comparative perspective, to what extent European countries have privatised their pensions in terms of voluntary pension systems. It aggregates and reports data on the assets, membership, and contributions in various pension plans across 20 European countries. To assess the overall relevance of voluntary pension systems in the studied countries, it proposes the Voluntary Pensions Index (VPI), which allows for cross-country comparisons. The paper analyses the relationship between the development of voluntary pensions and pension benefit adequacy in the mandatory schemes form two perspectives: current workers and current beneficiaries. The empirical results suggest that various levels of VPI in the countries studied can be explained by the differences in the pension systems generosity, but only towards the current working-age generation. In countries where the mandatory pension benefits are expected to be smaller, the supplementary pensions play a greater role. The results also imply that in countries with a flatter pension benefit formula adopted in the mandatory system, voluntary pensions are better developed. The adequacy of pension benefits from the mandatory system, as seen from the current beneficiaries’ perspective, does not seem to have an impact on the amount of savings and participation in the voluntary programmes.
Highlights
The past decades saw a significant demographic change in many countries in Europe and all over the world
The dataset contains the information on funded pension plans of all kinds that meet the following criteria: (1) they have explicit pension purpose and they are run under voluntary pension scheme, (2) they are not financed from the mandatory pension contribution, as optional to another pension scheme, (3) the participation is voluntary to plan members, i.e. an agent can voluntarily opt in or opt out
All three transformed variables are compiled into the single Voluntary Pension Index (VPI). It is given by the following formula: VPIi = w1 ⋅ ASSETSi + w2 ⋅ PARTi + w3 ⋅ CONTRi where ASSETSi denotes the normalized values of assets as a share of GDP in i-th country, PARTi stands for participation rate expressed as number of voluntary pension plans relative to the size of 15–64 population, CONTRi denotes contributions per plan with reference to the net average earnings, and w1, w2, w3 are the weights of components in the index
Summary
The past decades saw a significant demographic change in many countries in Europe and all over the world. In most of the countries, they comprise raising the statutory retirement age as well as strengthening the role of private occupational and personal pension schemes The latter is realized through implementing solutions aimed at fostering widespread participation and increasing private pension savings, such as introducing new types of voluntary pension plans and more favourable financial incentives. The paper verifies the hypothesis that there is a negative relationship between the benefit adequacy of mandatory pension schemes and the voluntary pensions development captured by different dimensions It addresses this problem from the cross-country macro perspective, as opposed to the previous literature that focuses mainly on micro data when exploring how mandatory pension programmes influence individuals’ participation in voluntary pension schemes.
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