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More Beveridgean or Bismarckian? A Comparative Analysis of Pension
Systems in Selected CEE Countries
Edyta Marcinkiewicz
Lodz University of Technology
Department of Management
Piotrkowska 266
Lodz, 90-924
Poland
e-mail: edyta.marcinkiewicz@p.lodz.pl
Abstract
The main aim of this study is to compare and assess tendencies in the pension systems in the Czech
Republic, Estonia, Hungary, Poland, Slovakia and Slovenia in respect to the level of intra-
generational redistribution. They are examined form the current workers’ perspective as well as from
the current pensioners’ perspective. First, the paper discusses institutional features that classify these
pension systems as more Beveridgean or Bismarckian. As shown, today’s pension system designs tend
to link more closely pension benefits and earnings. These findings are supported by the OECD
estimates that prove that the theoretical replacement rates for current workers involve very little
redistribution, except for the Czech Republic. Second, using aggregated data obtained from the OECD
and Eurostat databases covering the time span 2005-2013 the situation of current pensioners is
examined. The results of the analysis based on three indicators of intra-generational redistribution
show that pension systems in most studied CEE countries contain a strong redistributive component.
Thus, they can be described as Beveridgean. However, Slovenia can be perceived as an exception.
Keywords: pension system, intra-generational redistribution, Bismarckian factor
JEL codes: J14, H55, D31
1. Introduction
In the 1990s, like most European countries, the CEE countries had to face the unfavourable
demographic situation resulting from population ageing and low fertility rates. But there were also
additional reasons for pension reforms that were common to the post-Communist countries undergoing
transformation. As Mladen (2012) indicates, all the CEE countries suffered from declining economic
activity as a consequence of the restructuring of public-owned enterprises, the reduction in the number
of taxpayers, the increase of employment in the informal economy and high rates of tax evasion. This
was the extra burden that threatened the financial sustainability of PAYG pension systems. The fiscal
pressure forced the governments to implement reforms that would reduce public pension expenditures
incurred by the state. In most countries in the region the process of privatizing pensions was started.
The reforms undertaken in the 1990s by the CEE countries, both those affecting the
architecture of the pension systems as well as those of parametric nature, had an impact on the level of
intra-generational redistribution. Before transition all the countries relied solely on the unfunded
PAYG schemes and used defined benefit formulas, more popular in the Beveridgean social security
model . It is associated with a high level of redistribution within the generation of retirees, as the
pension benefits are loosely related to the contributions paid during an individual’s working life. In
this model, the replacement rates of high income earners are usually lower than the replacement rates
of the low-income earners. A pure Beveridgean model provides flat rate benefits. In contrast, the
Bismarckian model is characterized by a close link between previous earnings and pension benefits. A
pure Bismarckian model implies no intra-generational redistribution, i.e. transfers from the richer to
the poorer do not take place. Both models tend to support different goals of the pension system. While
the Bismarckian model promotes consumption smoothing, in the Beveridgean model poverty
alleviation is the main goal.
Usually only the PAYG unfunded schemes are subjected to categorisation into Beveridgean or
Bismarckian models, as the funded schemes are by their nature related to previous earnings
242
(contributions). However, in this paper these terms will be used in reference to public mandatory
pension plans, regardless of the managing entity, whether it is the state or a private institution. First,
the overall assessment of a pension system as Bismarckian or Beveridgean depends not only on the
design of the PAYG scheme, but also on its capacity i.e. its share in the pension benefit structure. A
pension system can include a very limited first pillar, but with a significant redistribution component,
and an extended mandatory second pillar and thus be perceived as not highly redistributive. Second, in
contemporary systems it can be difficult to distinguish between the components of the pension benefit
in respect to their source (the first or the second pillar). For example, in Poland the so called “safety
slider” mechanism is implemented: the funds collected in the second pillar will be gradually
transferred 10 years ahead of the retirement age to a sub-account (NDC) at the Social Insurance
Institution.
The main aim of this paper is to assess the level of intra-generational redistribution in a group
of CEE countries. To classify countries as Beveridgean or Bismarckian two approaches are used: an
institutional approach based on the analysis of pension system design, as well as an empirical
approach based on quantitative data analysis. Consideration of the pension system architecture features
such as the pillar structure, the level of contributions paid to different pillars
1
, coverage, defined
contribution (DC) vs. defined benefit (DB) formulas etc., to a great extent explains the nature of
systems that implies the Bismarckian or the Beveridgean model. However, specifying the nature of the
system “at the moment” should take into account the fact that the generation of retirees is not a
homogenous group. There are people who relatively recently have gained pension entitlements under
the new rules and people who have acquired those rights some time ago under the old, different rules.
In view of the fact that pension systems in recent years have not been stable, but undergoing reforms,
only empirical analysis of the effects can answer the question what is the actual model at a given time,
taking into account the diversity of generations of retirees.
This paper is structured as follows. Firstly, it considers the systemic features of pension
systems that influence the level of redistribution in six CEE countries: the Czech Republic, Estonia,
Hungary, Poland, Slovakia and Slovenia. In the next section, the issues of intra-generational
redistribution measurement in the comparative analyses of pension systems are discussed. The
empirical results of such analyses carried out on the basis on the Eurostat and OECD data concerning
the examined countries are presented in the subsequent section. The paper ends with synthetic
conclusions.
2. Pension Systems in the CEE Countries
As presented in Table 1, in all the six examined countries from the CEE region i.e. the Czech
Republic, Estonia, Hungary, Poland, Slovakia and Slovenia, the pension systems have been
undergoing reform since the 1990s (for a detailed review of the early reforms see for example Milos
and Milos 2011, Aslund 2012, Mladen 2012, Chybalski 2009, Lindeman et al. 2000). The reforms
that transformed the exclusively PAYG financing into multi-pillar systems and then changed the
balance between the pillars came in two waves. The first lasted from the mid 1990s to the mid 2000s.
It comprised strengthening the role of the funded pillars and of private savings in the pension systems.
It fostered the connection between pension benefits and previous earnings, and thus was a move
towards a Bismarckian system. However, the second wave of the reforms that took place after 2010
seemed to reverse the previously introduced reforms. The second funded pillar with funds managed by
private institutions has lost its importance in favour of the first unfunded pillar. In Hungary in 2010
the privately managed second pillar was liquidated, and the assets of the pension funds were
transferred to a great extent to the first pillar to ease public finances. Similarly, in Poland in 2014, half
of the assets of pension funds were transferred to the notional defined contribution (NDC) scheme.
Additionally, the participation in open pension funds belonging to the second pillar became voluntary,
and the contribution rate associated with this form of pension schemes has been reduced drastically.
Also in Slovakia the second pillar is no longer mandatory. In the Czech Republic the mandatory
1
Referring to the World Bank taxonomy of a multi-pillar system: pillar 0 covers so called “social pensions”,
pillar 1 includes mandatory publicly managed schemes, pillar 2 comprises mandatory privately managed
schemes and pillar 3 relates to the voluntary privately managed savings plans.
243
private pillar has never been introduced, as the pension system was based on the public pensions of the
first pillar and the voluntary pensions of the third pillar. Nonetheless, in 2013 an attempt was made to
create a voluntary second pillar as a result of the poor performance of the third pillar in terms of the
coverage and the assets collected. However, the experiment has not been regarded as successful and
the government plans its liquidation by the end of 2015. Out of the six analyzed countries only in
Estonia is participation in the second pillar pension funds mandatory.
Table 1: Pension Reforms Concerning Private Pensions
First wave pension reforms Second wave pension
reforms
Pillar 2
Mandatory private
pension
Pillar 3
Voluntary
private pension
Pillar 2
Mandatory private
pension
Czech Republic - 1994 2013
Estonia 2002 1998 -
Hungary 1998 1994 2010
Poland 1999 1999 2014
Slovakia 2005 1997 2013
Slovenia -* 2000 -
Note:* mandatory for public sector, banking sector and for occupations with high occupational risks
Source: Mladen (2012) and author´s elaboration
Table 2 presents the multi-pillar structures in the CEE countries. Most of the analyzed pension
systems comprise the zero pillar. It provides targeted, basic or minimum pensions, and through this
pillar the highest redistribution takes place. Referring to the first pillar that comprises the publicly
administrated pension plans, in Estonia and Slovakia a points system is implemented. Only Poland has
introduced an NDC scheme which is associated with two features: it is an unfunded and earnings
related DC scheme based on individual accounts. The first pillar in the Czech Republic, Hungary and
Slovenia is based on a defined benefit formula. In the countries where pension systems include second
pillar i.e. in Estonia, Poland and Slovakia it is characterized by the defined contribution formula.
Table 2: Structure of Retirement-Income Provision
Public
(Pillar 0) Public
(Pillar 1) Private
(Pillar 2)
Targeted Basic Minimum Type Type
Czech Republic DB
Estonia Points DC
Hungary DB*
Poland NDC DC
Slovakia Points DC
Slovenia DB
Note: DB = Defined benefit; DC = Defined contribution; NDC = Notional accounts, * Individual accounts
Source: OECD (2013a)
One of the main indicators of the relevance of the particular pillars in a pension system is the
level of the contribution rate paid to each pillar. As shown in Table 3, the great majority of the
employee’s and the employer’s contribution goes to the first pillar in all of the studied countries.
244
Table 3: Pension Contribution Rates (2014)
Pillar 1 Pillar 2
Employee Employer Total
Employee Employer Total
Czech Republic 6.5 21.5 28.0 - - -
Estonia 0.0 16.0 16.0 2.0 4.0 6.0
Hungary 1.5 24.0 25.5 8.0* - 8.0
Poland 2.5 9.8 12.2 7.3* - 7.3
Slovakia 7.0 12.8 19.8 - 9.0 9.0
Slovenia 15.5 8.9 24.4 - - -
Note: * contributions paid to the individual accounts in public pension schemes
Source: World Bank HDNSP pensions database
Another crucial indicator of the role of particular pillars in pension provision is the coverage
expressed as a percentage of the working age population. As presented in Table 4, the coverage of
private mandatory pension plans differs significantly across the studied countries. The highest
coverage, which is reported for Estonia, amounts to 69%. In Poland, before the pension reform in
2014, it was 56%, but after the legislative change it is only around 15%.
Table 4: Coverage of Private Pension Schemes by Type of Plan as a Percentage of the Working Age
Population (2011)
Mandatory /
Quasi-mandatory
Voluntary
Occupational Personal Total
Czech Republic n.a. n.a. 62.1 62.1
Estonia 68.9 n.a. .. ..
Hungary 1.5 n.a. 20.0 20.0
Poland 56.5 1.3 .. ..
Slovakia * 44.4 n.a. .. ..
Slovenia n.a. .. .. 38.2
Note: .. = Not available; n.a. = Not applicable, *The data for mandatory private pension plans refer to both
mandatory and voluntary personal plans as the division between these is not available
Source: OECD (2013b)
The pension system design may be characterized by several dimensions. The two most
important are the financing mechanism (PAYG or fully funded) and the benefit structure (DB or DC).
Redistribution usually occurs in PAYG systems, while it does not exist in fully funded systems. Thus,
if the share of the mandatory private schemes in pension provision increases substantially in
comparison to the share of the PAYG scheme, then the redistribution (if it exists) is also reduced. The
defined benefit mechanism also seems to foster higher redistribution, as it loosens the link between
contributions and benefits on an individual level. In DB systems, pension benefits do not necessarily
correspond to the present discounted values of the contribution paid in the past. As noted by Schwarz
(2006) the DB formula is typical for PAYG systems, and the DC formula is more common in fully
funded systems, but this assignment in contemporary real-world pensions systems may not be fully
valid. As a hybrid solution, the notional account formula has emerged in recent years. It merges
PAYG and DC earnings-related systems and, similarly to the funded systems, does not involve intra-
generational redistribution.
3. Intra-Generational Redistribution Measurement
In the existing literature, relatively few measures of intra-generational redistribution suitable
for international comparisons can be found. This phenomenon is usually characterized indirectly by an
institutional approach describing the features of pension system design. A review, as well as
classification, of quantitative measures of redistribution is provided by Rutecka (2012). This
245
classification, however, does not comprise the whole variety of approaches to the redistribution
measurement. For example, as an indicator of the level of redistribution, Conde-Ruiz and Profeta
(2007) apply the “Bismarckian index” defined as a correlation coefficient between pension benefits
and pre-retirement earnings calculated for a sample of individuals and based on micro-level survey
data. Typically, intra-generational redistribution measurement relies on the inequalities of pension
benefits with respect to previous earnings across the generation of retirees. Redistribution in the
pension system serves as a tool of poverty alleviation among the elderly, but affects consumption
smoothing, especially those of the highest income. In a highly redistributive system, high income
earners receive lower pension benefits in relation to contributions paid in contrast to low income
earners. In this section, three different indicators used in the empirical part of this paper are discussed.
A very simple index called the symptoms of redistribution ratio based on the net income
quintile share ratios in the working-age generation and generation of retirees is proposed by Chybalski
(2015):
(1)
where S80/S20
65-
is a ratio between the top quintile of income distribution in the cohort 65-, and the
bottom quintile, respectively. The S80/S20
65+
ratio refers to the income distribution in the old-age
generation
2
.
When RS>1 then redistribution in a pension system is likely to occur, because this implies that
inequalities in the generation of the elderly are smaller than in the working-age generation. In a
Bismarckian pension system, the inequalities in both generations should remain the same. If RS<1 then
the pension system can be degressive i.e. it supports inequalities, and redistribution from the poorer to
the richer may take place or it results from additional transfers outside the pension system that are
directed at more wealthy agents.
Because the proposed indicator employs the net income, including social transfers (pension
benefits) obtained by retirees belonging to the 65+ generation, as well as the social benefits aimed at
the 65- generation it seems that the RS indicator can be biased because of the underestimated earnings
inequality in the numerator of the ratio. Inequalities in the working generation may in fact be largely
offset by social transfers. In this case the indicator RS also is likely to be underestimated, and therefore
the actual redistribution may be greater than implied by the indicator. By analogy, high employment
rates in the 65+ cohort may also affect RS and its interpretation can lead to false conclusions.
A widely used measure of redistribution is the progressivity index (see for example Rutecka
2012). It is based on the ratio of the Gini coefficient calculated for pension benefits and the Gini
coefficient for incomes of the working age population:
(2)
The progressivity index varies between 0% and 100%. For pure Beveridgean pension systems
with perfectly flat-rate benefits, this equals 100%, and for the pure Bismarckian systems with pension
benefits proportional to the earnings it equals 0%.
Krieger and Traub (2008) proposed a ratio called the Bismarckian factor. It is dedicated to the
assessment of the level of intra-generational redistribution in pension systems. The Bismarckian factor
accounts for the fact that the real-world pension systems incorporate a mixture of both Bismarckian as
well as Beveridgean features. The original formula is as follows:
!
"
#!
$
%
!
"
#!
$
%&!
$
'
"
#!
"
'
$
(3)
2
In formula (1) the original notation is preserved, as it directly refers to the indicators provided by the Eurostat
and the OECD databases. However, when introducing other measures of redistribution in this section, the more
general notation will be applied for income quintile shares i.e. w
T
and w
B
for the top quintile share and the
bottom quintile share respectively.
246
where:
α
is the Bismarckian factor,
µ
denotes the mean income of a society, P
B
and Y
B
are the mean
pension benefit and the mean income in the bottom quintile of the income distribution in the
generation of pensioners and the working generation, respectively, and P
T
and Y
T
are the mean
pension benefit and the mean income in the top quintile of the income distribution. The construction of
the formula is clearly justified and it originates from the assumption that the pension benefit is a
combination of two components: related and unrelated to previous earnings (pension contributions).
Due to the lack of data in the comparative analyses of different pension systems, participation
equivalence needs to be assumed. This means that in the Bismarckian factor formula instead of the
previous earnings of the generation of today’s pensioners we can employ the earnings of today’s
working generation.
Nevertheless, similarly to the previously described ratios, the Bismarckian factor is based on
the income inequality measurement. For pure Beveridgean pension systems
α
equals 0, because there
are only flat pension benefits (P
B
= P
T
). For pure Bismarckian pension systems
α
equals 1, as the
distribution of pension benefits reflects perfectly the distribution of previous earnings (P
B
/Y
B
= P
T
/Y
T
).
Dividing the numerator and denominator in the formula (3) by P
B
we obtain:
("
($
#)%
*
("
($
#)+&'
"
#
("
($
'
$
(4)
Additionally:
!
"
!
$
,
(
"
,
(
$
(5)
-
.
,
/
"
0
(6)
-
1
,
/
$
0
(7)
where w
YB
and w
PB
are the shares [in %] of the bottom quintiles in the earnings and pension benefits
distributions respectively , and w
YT
and w
PT
are the shares [in %] of the top quintiles in the earnings
and pension benefits distributions.
Incorporating (5)-(7) into formula (4) allows excluding the mean income from the
Bismarckian factor and to operate only on the shares of the top and bottom quintiles:
2(
"
2(
$
#)%
3
2(
"
2(
$
#)4&
2/
"
56
#
2(
"
2(
$
7
2/
$
56
(8)
The formula (3) implies that the condition for
α
to be smaller than 1 is P
B
Y
T
-P
T
Y
B
>0. This
means that the greater the difference between the income inequality ratios in both generations i.e.
Y
T
/Y
B
and P
T
/P
B
(or w
YT
/w
YB
and w
PT
/w
PB
) the greater the redistribution in a pension system. The
condition can be also expressed as the difference between P
B
/Y
B
and P
T
/Y
T
which are the replacement
rates given for the cohorts from the first and the last quintile of the income distribution. Redistribution
takes place if the low-income earners have a more adequate pension benefit than the high-income
earners.
247
4. Empirical Findings
In order to examine the level of intra-generational redistribution in the pension systems of the
selected countries the OECD and Eurostat (EU Survey of Income and Living Conditions) data are
used. The empirical research comprises the time span between 2004 and 2013 and covers six countries
from the CEE region: the Czech Republic, Estonia, Hungary, Poland, Slovakia and Slovenia.
Figure 1: The Symptoms of Redistribution Ratio (RS)
Source: author´s calculations based on Eurostat data
Figure 1 presents the symptoms of redistribution ratio. The computed values indicate that four
out of the six examined pension systems – the Czech Republic, Hungary, Poland and Slovakia – are
characterized by a very similar level of the relative pension benefit inequality. In the period studied,
the ratio ranges between 1.4 (Hungary in 2010) to 1.8 (Hungary in 2006) which indicates a similar
redistribution level. However, there are two outliers. In Estonia the difference between income
inequalities in the 65- and 65+ cohorts has grown noticeably since 2006 to reach its peak in 2011 and
2012. The other country which differs significantly from the rest of the group is Slovenia, for which
the lowest values of RS ratio are reported. With respect to the period from 2005 to 2012 they are
smaller than 1, however close to the line. The income inequalities are slightly larger in the pensioners’
generation than in the working-age generation. This implies a more Bismarckian system.
A more profound insight into the obtained results of the analysis of the RS ratio is provided by
Figure 2. It presents income quintile share ratios for different age groups separately. One can notice,
for example, that income inequalities among pensioners in Slovenia are greater than in Estonia. In
other words, pensioners in Estonia are a more homogenous cohort in respect to their incomes.
However, this does not imply a higher redistribution level than in Slovenia, because of the differences
in the income distributions in the working generations in these two countries.
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Rep.
Estonia
Hungary
Poland
Slovakia
Slovenia
248
Figure 2: Income Quintile Share Ratios for Selected Age Groups
Source: Eurostat
Figure 3 presents the progressivity indexes calculated using OECD Gini estimates for the
studied CEE countries except Hungary, due to the lack of data. In the employed formula (2) as a proxy
of Gini
pensions
the Gini coefficient for gross income (i.e. before taxes) in the population aged 65+ was
applied, and as a proxy of Gini
earnings
the Gini coefficient for market income (i.e. before taxes and
transfers) in the 18-64 age group was included. The coefficients of inequalities based on the gross and
market income were chosen because the pension contributions are proportional to gross income. In
this way, the impact of taxation on reducing income inequalities (if it is heavily progressive) in the
working age generation is eliminated. The lowest progressivity is reported in Slovenia, and this
pension system is closest to the Bismarckian type. However, over examined period of time the
dispersion of progressivity indexes were noticeably reduced.
249
Figure 3: Progressivity Index (P)
Source: own calculations based on OECD data
Another indicator applied to empirically evaluate the level of redistribution in the examined
CEE countries is the Bismarckian factor. In this analysis, the aggregated data from the Eurostat
database is used. It comprises the EU Survey of Income and Living Conditions (EU-SILC). The
Bismarckian factor has been evaluated in a simplified procedure, i.e. using publicly available
aggregated estimates, not microdata. This approach can bias the results to some extent, so they will
serve only as an approximation of the level of redistribution. The ratio S80/S20(65+) as well as the
shares of the top and bottom quintiles of the income distribution in a society are applied in the formula
(8). Similarly to the study of Krieger and Traub (2008), the net incomes are taken into account. The
results are in line with previous findings, i.e. the pension system in Slovenia can be characterized as
Bismarckian, where pension benefits are most closely linked to the earnings. In case of Slovenia, the
reported Bismarckian factor exceeds 1. This is a result of the negative difference between the income
inequality ratios in the working age generation and the generation of the elderly. This is clearly visible
when comparing Figure 2.
Figure 4: Bismarckian Factor
Source: own calculations based on Eurostat data
0%
10%
20%
30%
40%
50%
60%
2004 2005 2006 2007 2008 2009 2010 2011 2012
Czech Rep.
Estonia
Poland
Slovakia
Slovenia
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Rep.
Estonia
Hungary
Poland
Slovakia
Slovenia
250
As argued in the previous section, the Bismarckian factor is to a great extent determined by the
magnitude of the difference that forms the condition for
α
to be smaller than 1 i.e. P
B
Y
T
-P
T
Y
B
>0,
which can be also expressed as the difference between the income inequality ratios in both generations
i.e. Y
T
/Y
B
and P
T
/P
B
, but also as the difference between the replacement rates given for the cohorts
from the first and the last quintile of the income distribution, i.e. P
B
/Y
B
and P
T
/Y
T
. The same applies to
the RS ratio, however, contrary to
α
it is exclusively dependent on the relation between these two
factors.
Figure 5 presents the differences in the replacement rates for the model low-income agents and
high-income agents, provided by OECD database. They are theoretical replacement rates estimated
based on several assumptions. It was assumed that these rates apply to 20-year-old people, single,
entering the labour market in 2012 and continuing their careers without interruption, until retirement
age as stipulated by law in each country. The calculations made are subject to the rules characteristic
for pension system in each country at the moment of creating a model (assuming the rules are constant
over time) and relate to the expected benefits pension from both the public and from private pension
plans, including those quasi-mandatory if only they cover at least 85% of the working population.
Figure 5: Differences between Replacement Rates for Low- and High-Income Earners.
Note: all the values are expressed in percentage points
Source: OECD
Results presented in Figure 5 concern gross and net replacement rates for agents (men and
women separately) earning 1.5 of the average wage and 0.5 of the average wage. The estimates are
calculated by the assumption of 3.5% rate of return after administrative charges on funded, defined-
contribution pensions. Contrary to the previous analysis with RS, P and
α
this one refers to the future
modelled pension benefits under the parameters and system design in each country as of 2012. The
previously calculated indicators rely on the incomes of today’s workers and benefits of today’s
-10
0
10
20
30
40
50
Czech Rep. Estonia Hungary Poland Slovakia Slovenia
Males
Gross Replacement
Rate
Net Replacement
Rate
-10
0
10
20
30
40
50
Czech Rep. Estonia Hungary Poland Slovakia Slovenia
Females
Gross Replacement
Rate
Net Replacement
Rate
251
pensioners, thus they are based on the cross sectional, not longitudinal, data, and require the
assumption that between two generations there is no re-ranking of the income and benefit positions.
Analysis of the theoretical projected replacement rates comprises the incomes of today’s working
generation and their benefits simulated for the future, thus it enables the assessment of the current
pension system design.
As shown, the greatest disparity between the projected pension benefit adequacy of low-
income earners and high-income earners is observed in the case of Czech Republic (above 40
percentage points) and Estonia (around 20 percentage points). Significantly lower differences are
estimated for Slovakia and Slovenia, whereas for Hungary and Poland the estimated replacement rates
are almost equally proportional to the previous earnings regardless of the level of earnings. This
implies that the current pension systems in the Czech Republic and Estonia (as of 2012) are much
more redistributive than in other countries, as low-income earners will have higher replacement rates
in the future than high-income earners. It is worth noting that no difference between men and women
(except for a small disparity in Slovenia) occurs, which indicates that redistribution between these two
groups is negligible.
5. Conclusions
The analysis of the level of redistribution in pension systems based on quantitative analysis of
historical data reflecting the current situation of pensioners in relation to current employees shows that
pension systems in most studied CEE countries contain a strong redistributive component. Thus, they
can be described as Beveridgean. Slovenia can be perceived as an exception, as the pension system has
a smaller influence on the reduction of income inequalities in the generation of retirees. After making
a number of assumptions concerning the analyses and interpreting the results according to the
principle of participation equivalence, it can be concluded that in the pension system in Slovenia the
linkage between pension benefits and earnings is the strongest, i.e. this system can be characterized as
more Bismarckian than in other studied countries. Note, however, that such analyses involve the
generation of pensioners, which is not homogeneous due to the participation in the pension system.
Members of this generation acquired the right to pension benefits at different times and under different
sets of rules. In fact, this generation represents a mixture of pension systems and the current level of
redistribution is a result of this mixture. The redistributional impact of the reforms introduced in recent
years will be visible in the future when the current working age generation becomes pensioners.
As a supplement, all the pension systems have been examined in regard to their design and its
features that make a pension system more Bismarckian or more Beveridgean. Today’s pension system
designs tend to link more closely pension benefits and earnings in their unfunded first pillar, and
despite the relatively weak funded second pillar. As presented, according to the OECD estimates the
theoretical replacement rates under the current set of rules involve very little redistribution, except for
the Czech Republic. Even the latest reforms conducted in the 2010s in some countries in order to
reduce the second pillar have not changed that, as they were aimed at strengthening the earnings
related components of the PAYG systems.
This study does not consider the determinants of such a course of pension system reforms in
CEE countries. It seems that the main reasons are motivated by the particular economic situation,
especially with regard to public finances. Historical reasons are also likely, as all the countries
inherited generous welfare state models from the communist era and there are still high expectations in
societies with regard to the generosity of pensions, also or especially for low income earners. The
study of Conde-Ruiz and Profeta (2007) presents some interesting findings in this matter. It
empirically demonstrates that a weak middle class in a society, with no, or a very small, political
impact, with the background involving strong income inequalities is the main factor that tends to foster
the Beveridgean pension system model.
Acknowledgement
This paper forms part of the project funded by the National Science Centre under grant
number DEC-2013/09/B/HS4/01516
252
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