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Inequalities and poverty risks in old age across Europe: The double‐edged income effect of pension systems

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Abstract

While the sustainability of pension systems facing demographic ageing has been widely discussed, the adequacy of retirement income has often been neglected in current debate. However, considerable poverty and income inequality in old age exists across Europe. Using recent EU‐SILC data (2017/18), the comparative analysis of poverty rates and income inequality in old age shows important cross‐national variations that need to be seen in context of market‐related inequalities but also the specific pension system. Beveridge basic security is not always capable of effectively reducing poverty despite the explicit goal to do so. In addition, private funded pensions may generate social inequality. Some contributory Bismarckian systems are better suited to reduce poverty, but given their focus on status maintenance also reproduce inequality. Poverty rates are low due to encompassing basic pensions in Dutch and some Nordic multipillar systems and in core Central and Eastern European countries. Bismarckian pensions such as in Germany are generating some inequality and medium level of poverty, while France and some Southern European countries perform better on poverty but reproduce larger inequalities. Beveridge systems such as in the United Kingdom and Switzerland with rather meagre basic multipillar systems have relatively medium to high poverty risks. In addition, the Baltic countries and new EU member states in the periphery have the highest poverty rates across Europe. The analysis shows that the minimum income provision of public pension systems matters most for poverty risks, while the overall pension architecture has an impact on reproducing inequality in old age acquired during working life.
ORIGINAL ARTICLE
Inequalities and poverty risks in old age across
Europe: The double-edged income effect of
pension systems
Bernhard Ebbinghaus
Department of Social Policy & Intervention,
University of Oxford, Oxford, UK
Correspondence
Bernhard Ebbinghaus, Department of Social
Policy & Intervention, University of Oxford,
Oxford OX1 2ER, UK.
Email: bernhard.ebbinghaus@spi.ox.ac.uk
Abstract
While the sustainability of pension systems facing demo-
graphic ageing has been widely discussed, the adequacy of
retirement income has often been neglected in current
debate. However, considerable poverty and income inequal-
ity in old age exists across Europe. Using recent EU-SILC
data (2017/18), the comparative analysis of poverty rates
and income inequality in old age shows important cross-
national variations that need to be seen in context of
market-related inequalities but also the specific pension
system. Beveridge basic security is not always capable of
effectively reducing poverty despite the explicit goal to do
so. In addition, private funded pensions may generate social
inequality. Some contributory Bismarckian systems are bet-
ter suited to reduce poverty, but given their focus on status
maintenance also reproduce inequality. Poverty rates are
low due to encompassing basic pensions in Dutch and some
Nordic multipillar systems and in core Central and Eastern
European countries. Bismarckian pensions such as in
Germany are generating some inequality and medium level
of poverty, while France and some Southern European
countries perform better on poverty but reproduce larger
inequalities. Beveridge systems such as in the United
Kingdom and Switzerland with rather meagre basic
Contribution to special issue:Inequalities in Pensions and Retirement: Life-courses and Pension Systems in Comparative Perspective
Received: 27 May 2020 Revised: 22 December 2020 Accepted: 23 December 2020
DOI: 10.1111/spol.12683
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and
reproduction in any medium, provided the original work is properly cited.
© 2021 The Authors. Social Policy & Administration published by John Wiley & Sons Ltd.
Soc Policy Adm. 2021;116. wileyonlinelibrary.com/journal/spol 1
multipillar systems have relatively medium to high poverty
risks. In addition, the Baltic countries and new EU member
states in the periphery have the highest poverty rates across
Europe. The analysis shows that the minimum income provi-
sion of public pension systems matters most for poverty risks,
while the overall pension architecture has an impact on rep-
roducing inequality in old age acquired during working life.
KEYWORDS
Europe, inequality, old age, pension systems, poverty
1|INTRODUCTION
While the financial sustainability of pension systems facing demographic ageing has been widely discussed, the adequacy
of retirement income is largely neglected in the current debate. This is partly because poverty in old age seems no longer
a pressing concern in advanced welfare states, partly because the Great Recession starting in 2008 had shifted attention
to joblessness and poverty of the working age population. More recently, the Coronavirus pandemic of 2020 puts the
headlights on the immediate economic problems caused by lockdowns while dealing with a public health emergency.
Although the elderly face a higher Covid-19 mortality risk and health care confronts an unprecedented stress test, there
is currently little consideration of the possible impact on retirement income other than acknowledging the role of pen-
sions as automatic stabilizersof old age income benefitting a quarter of the population across Europe
(Ebbinghaus, 2020). While unemployment has declined during the decade after the 2008 crash, old age poverty and
inequality has increased more recently prior to the pandemic. Irrespective of the current pandemic, there are significant
variations in old age poverty and income inequality that warrant attention, as pensions are not everywhere adequate for
every older person. It is difficult to fine-tune pension systems to overcome poverty and reduce inequality simultaneously.
Given their double-edged income effect the balancing between both these goals will determine which side they cut more.
Using cross-national comparison, this article studies variations in retirement income across Europe and relates
these to the major features of their pension systems. This study uses key indicators from the European Union Survey
of Income and Living Conditions (EU-SILC) to analyse poverty rates and income inequality across Europe for the
most recently available data (2017/18).
1
The main question is to explore why the income situation for older people
differs across Europe. My main goal is to map these cross-national differences in old age income and to explain these
with the help of benefit indicators and institutional typologies of pension systems. The analysis utilizes the institu-
tional variation between Bismarckian old age social insurance (SI) systems, which are still dominantly public pay-as-
you go, and Beveridgean multipillar systems, which rely on basic pensions and funded supplementary schemes. In
addition, this study differentiates their (often complex) architecture in respect of income tiers and governance pillars,
acknowledging the impact of past reforms to marketization and privatization of pension systems (Ebbinghaus, 2015).
In the following, I first review the main typology of Bismarckian versus Beveridge pension systems, between
earnings-related SI with contributory income maintenance and minimum income protection to reduce poverty,
acknowledging further differences in developing multipillar systems. In a first empirical step, the cross-national pat-
terns of poverty and inequality in old age are compared with the current income situation of the working population.
Bivariate analysis shows some association of poverty with the generosity of pension systems. Thereafter, the main
variations with respect to old age poverty and inequality will be presented in a two-dimensional typology. First, pov-
erty patterns are related to the main variations in public pension systems, in particular the minimum income provi-
sions. Second, inequality patterns are related to the publicprivate pillars and the importance of contribution-related
2EBBINGHAUS
and funded pensions. The conclusion discusses the main findings and their impact for future old age income given
ongoing reform processes and the current economic crisis. The main results of the analysis demonstrate that the
minimum income provision of public pension systems matters most for poverty risks, while the overall pension archi-
tecture has an impact on reproducing inequality in old age acquired during working life.
2|ANALYSING INCOME EFFECTS OF MULTIPILLAR PENSION SYSTEMS
As this study seeks to explain differences in old age poverty and inequality, it is important to compare the cross-
national variations in pension systems as the most important factor in shaping minimum income and mediating the
impact of past earnings on retirement income. In contrast to welfare state analyses which assume three different
regimes (Esping-Andersen, 1990), classifications of pension systems are commonly based on two ideal-typical models
(Palier & Bonoli, 1995): the BismarckianSI tradition (dating back to Imperial Germany), and the Beveridgean
reforms of post-war welfare states (inspired by the British liberal reformer Lord Beveridge). This dichotomy
(Meyer, 2013; Palier & Bonoli, 1995) has been used to describe the main institutional variations across Europe
(Ebbinghaus, 2011): Bismarckian SI provides for earnings-related benefits (on a pay-as-you-go bases), while a flat-
rate basic pension (Liberal and Nordic countries, but also the Netherlands and Switzerland) aims at poverty reduction
but leaves some room for filling income gaps by private means. This typology was further amended in order to cap-
ture whether the systems come more or less close to the ideal-type (Hinrichs & Lynch, 2010). Over the post-war
period, some Beveridge plussystems added mandatory earnings-related schemes, while some Bismarckian lite
systems were rather lean in their benefits, thus resulting in a fourfold pension system typology (Ebbinghaus, 2011).
Systemic changes are rare, but we can sometimes find the elephant on the move(Hinrichs, 2000), such as the
Swedish reforms of the 1990s that have replaced the basic plus earnings-related state pensions into a multipillar sys-
tem with an income-tested guaranteed pension and contributory pensions plus mandated funded personal and occu-
pational pensions (Hinrichs & Lynch, 2010). In Central and Eastern Europe (CEE), following the transition to
democratic market economies, most old age retirement income systems were transformed to SIs with additional
mandatory funded pensions during the late 1990s (Müller, 2008; Orenstein, 2008). However, during the Great
Recession, there had been turnarounds ranging from nationalizing funded pillars (as in Hungary) to scaling down
defined contributions (Drahokoupil & Domonkos, 2012).
In addition, the publicprivatedivide has been noted as a consequence of the privatization and marketization
of pension systems (Ebbinghaus, 2015; Sorsa, 2016), though the difference between public and private depends on
the definition used and focus of analysis. An influential typology, first advanced by international organizations, is the
distinction between pillarsaccording to their responsibility (Leimgruber, 2012): the first public, the second private
occupational and the third private personal pension pillars. While the state finances and regulates the first (public) pil-
lar, it remains more in the backseat in respect of the governance of the second (occupational) or third (personal) pen-
sion pillars, though investment regulation and tax subsidies allow regulatory intervention (Leisering, 2011). It is
reasonable to expect that the more pension systems have shifted from public responsibility to a multipillar system,
the less redistributive they are and the less effective their poverty reduction. Marketization and privatization tend to
excel inequality through unequal access, contribution-related benefits or investment risks (Ebbinghaus, 2015).
Given the increased flexibilization of employment, the access to contributory SI and private occupational or per-
sonal pensions is crucial (Hinrichs & Jessoula, 2012). In particular, coverage of private pensions matters in respect of
inequalities: who has access to such pensions and what happens in case of job changes? State regulation could pro-
vide mandatory coverage (as in Switzerland, Sweden and some CEE countries), the ministry could extend (erga
omnes) collective agreements between unions and employers (as in the Netherlands), it could provide opt-out of
national insurance (Britain in the past) for employers or individuals, it could provide subsidies to low-income individ-
uals or families (as for the Riester pension in Germany) or require employers to provide a pension plan with auto-
matic enrolment (as in Britain more recently). These governance and regulatory differences shape the income
EBBINGHAUS 3
situation of current pensioners (Neugschwender, 2011), and they will matter even more in the future given the
uneven coverage across sectors, occupational groups and gender (Meyer, Bridgen, & Riedmüller, 2007).
An important second dimension is the income function of pensions, that is, the tiers: the first tier (universal)
redistributive public schemes versus the second tier (mandatory) insurance (OECD, 2005: chap. 1; Whitehouse,
2007). While the first-tier minimum income function is always part of the first (public) pillar, the second-tier income
maintenance can be provided by one of the three pillars or a combination of them. These two analytical dimensions,
the pillars (governance) and tiers (income function), have been also applied in research (Ebbinghaus, 2011; Goodin &
Rein, 2001; Immergut, Anderson, & Schulze, 2007). We will apply here the enhanced Bismarck/Beveridge-typology
based on the mix of pillars and their particular income tiers in order to classify pension systems. Only few studies
have used quantitative analysis based on indicators to establish comparative typologies for pension systems
(Hofäcker & Unt, 2013; Soede & Vrooman, 2008). We therefore rely also on international organizations, in particular
the OECD, the EU Commission, and Eurostat, that provide comprehensive databases and comparative reports on
pension indicators (Christensen, Doblhammer, Rau, & Vaupel, 2009; EU-SPC, 2015; EU-SPC(ICG), 2009; OECD,
2014, 2017). Note that my empirical analysis focuses only on income indicators (poverty and income inequality), not
on more broader concepts of social exclusion and insecurity that are very relevant when studying the well-being of
the elderly (Ogg, 2005; Zaidi, 2011).
The overriding goals of pension systems have been twofold: first, guaranteeing a minimum income to avoid pov-
erty in old age, and, second, maintaining the living standard during retirement and reproduce social inequalities
acquired during working life. While the former goal had been the priority in the Beveridgean system, the latter has
been more important in Bismarckian SI. Nevertheless, both goals are part and parcel of all pension systems; it is the
balance of the two that matters. From a social inequality perspective, the public first-tier pension benefits are most
important in reducing poverty, while many additional aspects of the multitier, multipillar pension architecture influ-
ence the reproduction of market inequality in old age.
3|WORKING AND OLDER PEOPLE'S POVERTY AND INEQUALITIES
My analysis of the current income situation of older people (aged 65 and older) across Europe focuses on both the
relative poverty risks and the inequalities between high- and low-income groups. I will assume a twofold impact of
pension systems: on one hand, minimum income provisions have a stronger impact on poverty reduction, while
inequality in old age income is shaped by the multipillar architecture. While poverty and inequality had increased for
the working population during the Great Recession, 10 years after the 2008 crash, old age poverty and inequality is
back on the agenda. Old age income may still be complemented by income from work; this might be the main source
of income for those without appropriate pension or retirement savings, the working pensioners (Scherger, 2015). I
will only consider the income situation of older people aged 65 or older to exclude those on early retirement. Never-
theless, employment for those aged 65 to 69 does vary across countries, but it exceeds 20% only in the United King-
dom, Sweden, Norway and the Baltic countries, thereby reducing poverty risks.
In a first step, I compare the working population (under age 65) with the older population (aged 65 and older) to
understand to what degree pension systems amplify or reduce poverty and inequality. Such a cross-sectional com-
parison cannot claim to measure current pensioners' income with respect to their former earnings, but it allows the
evaluation of the concurrent earnings inequality and poverty level present in the working population with the pov-
erty risk and income inequality among older people in today's society. Although such an analysis is merely approxi-
mate given that today's pensioners have worked at earlier periods, it evaluates the current societal level of income
inequality and poverty produced by the market economy and welfare/tax policies with the publicly accepted level of
welfare/tax income among the older population. While labour relations, in particular collective bargaining between
trade unions and employers, largely determine the earnings inequalities of the working population (aged 1864), the
poverty levels are particularly affected by minimum income benefits and tax systems (Bahle, Pfeifer, & Wendt,
4EBBINGHAUS
2010). Whether these market-related primary income inequalities and poverty patterns are reproduced in old age
also depends on the (re)distributive effects of pension systems.
Figure 1 presents the bivariate relationship of the at-risk-of-poverty rate (measured at 60% median equalized
disposable income) of the working population under age 65 (horizontal axes) and those older people aged 65 and
older (vertical axis) reported by EU-SILC (2017/18). The relationship between the poverty of working age people
and that of older ones is rather weak, indicating that welfare states have very different approaches to and success in
reducing poverty in old age in contrast to the working age population. In about half of the European countries,
working-age poverty is higher than for the older population (countries below the diagonal). The Bismarckian systems
in Southern Europe reduce the poverty level for older people compared to the working age population, though they
are still recovering from the Great Recession and pensions function as an automatic stabilizer. Many pension systems
are relatively close to the diagonal (including the British and Irish systems), indicating that their overall level of pov-
erty is similar between both population groups. Finally, there are large country clusters with more significant levels
of old age poverty diverting considerably from that of the working age population; this is the case for some new EU
member-states (the Baltics, followed by Bulgaria, Croatia, Malta and Cyprus) but also Switzerland (with a three-pillar
system of a basic pension, occupational pensions and individual savings). In these countries, minimum income provi-
sions are not enough to raise older people above the risk of poverty threshold: this is particularly the case for those
aged 75 or older, who face substantially higher poverty rates than the age group before (aged 6574), which is partly
still active.
2
The second dimension of income distribution is income inequality. In order to study the impact of market-
induced inequality during working age on inequality in old age, Figure 2 uses the gap between the top income quin-
tile (the top 20%) and the lowest income group (the lowest 20%) according to the Eurostat definition (S80/20
inequality). The income spread is by far larger for the working population than for older people; it ranges 38 times
between the top and low earners under age 65, while it varies only from 2 to <6 times among older people (aged
65 and older). While earnings inequality during working life is more unequal, most pension systems not only reduce
poverty but also partially compress the income distribution for those in retirement. Only very few countries show a
slightly higher income inequality in old age than for the working population (Switzerland and Cyprus), whereas most
other European countries are below the diagonal as their market-induced inequality is higher. But note that some
countries in Southern and (peripheral) Eastern Europe tend to have considerably elevated inequality during working
EU28
EU27
EZ19
EZ18
BE
BG
CZ
DK
DE
EE
IE
GR
ES
FR
HR
IT
CY
LV
LI
LU
HU
MT
NL
AT
PO
PT
RO
SI
SK
FI
SE
UK
NO
CH
R = 0.0755
5
10
15
20
25
30
35
40
45
510152025
Older people (age 6 5+)
People under a
g
e 65
FIGURE 1 At-risk-of-poverty rate by
age group. Source: At-risk-of-poverty rate
(ilc_pnp1) in EU-SILC (2017/18) [Colour
figure can be viewed at
wileyonlinelibrary.com]
EBBINGHAUS 5
life (horizontal) which is largely reproduced in old age, albeit slightly less pronounced (vertical axes). Social inequal-
ities are more compressed among the retired population thanks to their pensions, though many countries still have
considerable income spread. While this comparison is contemporary, it is important to keep in mind that the poverty
and inequality of income among older people are the outcome of past levels of poverty and inequality experienced
during their past working lives.
Whether these differences in old age income in respect to poverty and inequality reproduce market inequality
or soften their impact depends on the redistributive logic of pension systems. One pension system indicator is the
overall social adequacy of pensions: Are the average level of old age benefits in line with the earning level of the
working population? Eurostat's aggregate replacement rate is a synthetic indicator that relates the median individual
gross pension (aged 6574) to the median individual gross earnings of the senior career age group with peak earn-
ings (aged 5059), excluding the group of those in transition to retirement (aged 6064). Figure 3 provides this
aggregate replacement level in comparison to the at-risk-of-poverty rate 2017/18 (without outlier Luxembourg due
to its very high benefits).
There is a relatively strong cross-national association between generosity of replacement level and poverty
reduction: the higher the overall replacement level, the lower the share of older people at risk of poverty. The coun-
tries with low old age poverty also tend to have higher retirement benefits, maintaining a good standard of living
(at least 80% of the median earnings), while the countries with high old age poverty risks live in societies with less
generous benefits (below the 80% mark). The relationship between replacement rate and old age income inequality
is much less clear (data not shown), indicating that the replacement rate level is a less powerful predictor for inequal-
ity than for poverty. Other features of the pension system in addition to market-induced earnings inequalities during
working life matter for pension inequality more than the overall replacement rate, in particular uneven access and
contributions in voluntary private systems matter.
4|CROSS-NATIONAL VARIATIONS IN OLD AGE POVERTY AND INCOME
INEQUALITY
Having shown these cross-national variations in the income situation among older people across Europe, I will
explore the particular clusters of countries with distinct patterns of old age poverty and inequality. Table 1 maps the
EU28
EZ19
BE
BG
CZ
DK
DE
EE
IE
GR
ES
FR
HR IT
CY
LV LI
LU
HU
MT
NL
AT
PO
PT
RO
SI
SK
FI
SE
UK
NO
CH
R = 0.5244
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
3.0 4.0 5.0 6.0 7.0 8.0 9.0
Older people (age 65+)
People under a
g
e 65
FIGURE 2 Inequality by age group.
Source: Income quintile share ratio S80/
20 for disposable income (ilc_di11) in EU-
SILC (2017/18) [Colour figure can be
viewed at wileyonlinelibrary.com]
6EBBINGHAUS
two main income dimensions among older people (aged 65 and older): inequality measured by the top quintile in
relation to lowest quintile pension (vertical axis), and the risk of poverty rate (share of those with less than 60%
median equalized income, horizontal axis). Classifying countries according to their relative position compared to the
overall European average (18% in old age poverty and 3.9 times in inequality spread), that is, the medium rank, Table
1 groups countries into five categories on each dimension from low to high. The top performers (one SD below the
average) are Norway and Slovakia (below 8.4 and 3.1%), followed by three Nordic welfare states (Island, Denmark
and Finland) as well as the Netherlands, but also two CEE countries: the Czech Republic and Hungary. Relatively low
inequality but medium poverty is found in Belgium, Poland and Slovenia today.
Among the middle field, three countries are slightly below the European average: Austria, Ireland and Sweden;
this indicates a significant improvement for Ireland (traditionally with high poverty) but a decline for the modelwel-
fare state Sweden. Given the high benefit generosity in some Bismarckian systems, poverty is relatively low, yet
inequality is higher than the average for France, Greece and Luxembourg. The reverse trade-off is found in three EU
enlargement countries with higher poverty but medium level inequality: Malta, Romania and Estonia. A group with
average poverty but higher level of inequality consists of both the Bismarckian name-giver Germany and theBev-
eridge welfare state, the United Kingdom. Also in the South, Italy, Spain and Portugal have medium level poverty but
higher than average inequality. Finally, Switzerland, with its three-pillar system, and several new EU member states
EU28
EZ19
BE
BG
CZ
DK
DE
EE
IE
GR
ES
FR
HR
IT
CY
LV
LI
HU
MT
NL
AT
PO
PT
RO
SI
SK
FI
SE
UK
NO
CH
R = 0.345
5
10
15
20
25
30
35
40
45
0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75
Poverty (60% level) age 65+
Replacement rate for age group 65-74 (% income of age group 50-59)
(excl.LU)
FIGURE 3 Old age poverty and replacement rate. Source: Old age poverty (see Figure 1). Aggregate replacement
ratio for pensions (tespn070) in EU-SILC (2017/18)
EBBINGHAUS 7
(Croatia, Cyprus, Bulgaria, Lithuania and Latvia) have the double challenge of high poverty (above 20%) and large
inequality (45 times between lowest and highest quintile).
This comparative analysis of poverty and inequality across Europe shows considerable cross-national variation in
the income situation of older people. Neither all Bismarckian nor all Beveridgean systems are capable of preventing
poverty and reducing inequality in old age. However, the Dutch and Nordic universal multipillar systems (except Swe-
den) and the Visegrád countries (except Poland) are performing very well with respect to both policy-aims: low pov-
erty and low inequality. However, these are only 8 out of 32 European countries, and they tend to be rather small to
medium-sized economies with either well-developed welfare states or rather low post-transition market inequality
(see Figures 1 and 2). The largest economies such as Britain, Germany, France and Italy are all facing the double chal-
lenge of old age poverty and inequality. In Eastern Europe, beyond the Visegrád countries and Slovenia, in particular,
the Baltic liberal pension system countries and the peripheral newest EU member countries, have reproduced high
poverty and inequality, failing to expand social protection and curb market inequalities. This also applies to Switzer-
land with its multipillar system, the only Western country (albeit outside the EU) severely failing on both dimensions.
5|PUBLIC FIRST-TIER INCOME PROTECTION AND POVERTY
REDUCTION
How can we explain the found patterns of old age poverty? While the bivariate analysis of indicators (see Figure 3)
helped us to account for some association between poverty and pension generosity (replacement rate), there are
TABLE 1 At-risk-of-poverty rate and income inequality (S20/80) among older people (65+), EU-SILC, 2017/18
At-risk of-poverty rate (60% of median income)
Inequality (65+) Low L (8.4)
Low-medium LM
(8.413.2) Medium (13.218.0)*
Medium-high MH
(1827.6) High H (27.6)
Low (3.1) SK* (6.7, 2.4)
NO# (8.1, 3.0)
CZ* (12.5, 2.4)
DK# (8.9, 3.0)
NL# (10.4, 3.0)
FI# (12.8, 3.0)
BE~ (16.4, 3.0)
Low-medium (3.13.5) IS# (6.1, 3.4) HU* (9.5, 3.5) PO* (14.7, 3.4)
SI* (17.4, 3.4)
MT+ (25.2, 3.2)
Medium (3.53.9)* AT~ (13.4, 3.8)
SE# (15.2, 3.6)
IE¬(17.5, 3.8)
*Ø (18.0, 3.9)
RO* (21.4, 4.4) EE* (43.8, 3.7)
Medium-high (3.94.7) FR~ (8.1, 4.1) GR+ (12.0, 4.0) ES+ (15.2, 4.5)
EU (15.5, 4.2)
DE~ (17.6, 4.1)
UK¬(18.1, 4.6)
CY+ (21.5, 4.6)
High (4.8-) LU~ (12.0, 4.8) IT+ (15.5, 4.8)
PT+ (17.4, 5.3)
CH¬(24.5, 4.8) BG* (30.6, 4.9)
HR* (28.4, 4.8)
LV* (42.8, 5.0)
LT* (35.6, 4.9)
Note: * Medium: average (Ø) across all countries (EU28, incl. UK, plus CH, IS, NO); Low/High: one SD ± the average
(poverty: 9.6, inequality: 0.8); pension systems with basic security underlined; Regime:¬Liberal, ~Centre,*Eastern (CEE),
+Southern,#Nordic.
Source: First number, horizontally: at risk of poverty rate (60% level) for older people (age 65+); second number, vertically:
disposable income inequality (S8/S2) and based on EU-SILC (TESPN050/080), average for 2017 and 2018.
8EBBINGHAUS
more subtle institutional features of pension systems that matter for the reduction of old age poverty. Public pen-
sions differ in respect of their first-tier minimum income protection (Goedemé, 2013; Goedemé & Marchal, 2016):
Beveridgean basic pensions provide flat-rate benefits to all residents (based on contribution years or residence
period) with some means-tested targeted benefits, whereas Bismarckian pensions often provide a minimum social
pension(for those with enough contribution years) or rely on targeted welfare, be it income-tested guaranteed ben-
efits or means-tested social assistance. For a minimum pension (or social pension, if existent), the number of required
contributory years is relevant. This might be particularly problematic for women with very few working years (due to
care-related breaks), the long-term unemployed or first-generation migrants who arrived late in their career in their
host country (see Möhring in this issue). Public systems differ in respect of accrediting care-giving years and years of
unemployment (Möhring, 2016).
Among the Beveridgean systems with basic pensions, the benefit level (% average earnings) is important to
reduce poverty risks: British (16%), Danish (17%) and Icelandic (7%) pensions are particularly low, while Irish (37%)
and Dutch (30%) public pensions are today among the highest in the OCED (see Table 2, based on OECD, 2017). In
many cases, income-tested guarantees or means-tested targeted benefits are needed to lift them out of severe pov-
erty: 17% of British and Irish pensioners receive such targeted benefits (35% of average earnings) most and nearly
9 out 10 Danish pensioners (18%) and many Icelandic pensioners (20%). Three Nordic countries have changed from
basic pensions to (income-tested) guarantees: 47% of retired Finns receive such form of minimum benefits (with a
maximum of 21% of average earnings), 22% of Norwegians (32%) and 42% of Swedes (24%, plus targeted 15% bene-
fit). The Swiss pension insurance provides basic security with rather limited contribution-related benefits (minimum:
16%) and a targeted supplement for every tenth pensioner (12%). Nowhere are the basic, targeted or minimum bene-
fits enough to lift pensioners completely above the OECD's poverty line, that is, half of the net disposable income of
the median earner.
Given the patterns in respect of poverty, only the Nordic and Dutch universal pension systems provide a good
protection against the risk of poverty, based on a combination of basic or targeted minimum income provision (or a
guaranteed minimum provision) that reaches the most in need. Among the eight countries with low poverty and low
inequality, the Netherlands and all Nordic countries except one are represented. Sweden only figures today among
the group with average poverty and inequality levels, having switched from basic-plus-earnings-related to a mainly
earnings-related system. In the case of Ireland, a country with traditionally higher poverty, improvements in its basic
pension provide today a slightly better performance than Britain, which has somewhat higher poverty rates despite
recent improvements. At-risk-of-poverty rates vary across these Beveridgean systems from low to medium levels
despite their explicit goal of poverty reduction. Following Korpi and Palme's (1998) paradox of redistribution,we
find that it is not the targeted systems that are best to reduce poverty but the more encompassing universal plus
supplementary ones, though the irony is that Sweden after its reforms is no longer the best performer. Generally, we
can conclude that the first-tier Beveridgean pension system is a necessary but not sufficient condition for reducing
poverty across Western Europe: second-tier supplementary pensions also matter.
Among the Bismarckian systems, it is also the second-tier pension that matters for poverty reduction, not only
the first tier. Given the contributory SI, these systems have no universal basic pension, yet often a means-tested
social assistance or further minimum provisions. For instance, Germany introduced an income-tested targeted bene-
fit (only 2% of pensioners receive benefits of 19% average earnings) relatively late in 2003. The other Bismarckian
system that has only targeted (means-tested) benefits is Austria (11% receive a benefit at 28%). Among the French-
speaking countries, minimum pensions for those with enough social contributions are provided to 11% of Belgians,
29% of Luxembourgers and even 37% of French pensioners with medium level benefits (28%, 40% and 23% bene-
fits, respectively). Indeed, as discussed, Germany has only a medium level of poverty (17.6%) similar to Belgium
(16.4%), while Austria (13.4%), Luxembourg (12.0%) and France (8.1%) have somewhat lower levels. Thus among the
traditional Bismarckian countries in Western Europe, particularly those with a social pension have done better, oth-
erwise poverty levels are only at a medium European level.
EBBINGHAUS 9
TABLE 2 Comparison of pension systems in Europe: First tier and multipillar structure (OECD, 2017)
Type* Poverty Inequality Code Country
Public first tier
(cov. ×%AW)
Public/Private
second tier
Low/Low 6.7 2.4 SK* Slovakia Target (22%) Soc. ins. (DB/LP; DC)
8.1 3.0 NO# Norway Min. (22×32%) Soc. ins. (NDC2014-;
DC c:2%)
6.1 3.4 IS# Iceland Basic (7%), target (20%) Mand. occ. (DB/L,
c:12 + %)
8.9 3.0 DK# Denmark Basic (17%), target
(88×18%)
Private DC (c:11%)
10.4 3.0 NL# Netherlands Basic (30%) QM and.occ. (DB*/L)
12.8 3.0 FI# Finland Min. (47x21%) Soc. ins. (DB/L)
12.5 2.4 CZ* Czechia Basic (9%), min. (12%) Soc. ins. (DB/L)
9.5 3.5 HU* Hungary Min. (12%) Soc. ins. (DB/L)
Low/High 8.1 4.1 FR~ France Min. (37×23%), target (25%) Soc. ins. (DB/b25y/
LP)
12.0 4.8 LU~ Luxembourg Basic (10%), min (29×40%),
target (1×30%)
Soc.ins. (DB/L)
12.0 4.0 EL+ Greece Min. (69×14%), target (36%) Soc. ins. (DB/L)
Medium/
Low
14.7 3.4 PL* Poland Target (12×15%), min (25%) Soc.ins. (NDC; DC
c:3.8%)
16.4 3.0 BE~ Belgium Min. (11×28%), target
(5×25%)
Soc. ins. (DB/L)
17.4 3.4 SI* Slovenia Target (17×31%), min.
(2×13%)
Soc.ins. (DB/b24y)
Medium/
Medium
13.4 3.8 AT~ Austria Target (11×28%) Soc. ins. (DB/40y)
15.2 3.6 SE# Sweden Min. (42×24%), target (15%) Soc.ins. (NDC/L; DC
c:2.5), CA
17.5 3.8 IE¬Ireland Basic (37%), target
(17×35%)
Vol.private
Medium/
High
15.2 4.5 ES+ Spain Min. (28×34%), target
(6×20%)
Soc.ins. (DB/f25y)
15.5 4.8 IT+ Italy Min. (32×19%), target (22%) Soc. ins. (NDC)
17.4 5.3 PT+ Portugal Min. (60x34%), target
(17×17%)
Soc.ins. (DB/L)
17.6 4.1 DE~ Germany Target (2×19%) Soc. ins. (DB/LP)
18.1 4.6 UK¬United
Kingdom
Basic (16%), target
(27×20%), min. (10%)
Soc.ins (DB/L) or opt-
out (DB/DC)
High/
Medium
21.4 4.4 RO* Romania Min. Soc.ins. (DB/L)
25.2 3.2 MT+ Malta Basic Soc.ins. (DB/L)
43.8 3.7 EE* Estonia Basic (13%), target (6×15%) Soc. ins. (DB/LP),
private DC
High/High 21.5 4.6 CY+ Cyprus Basic Soc. ins. (DB/L)
24.5 4.8 CH¬Switzerland Target (12×22%), min.
(16%)
Mand.occ. (DB/L)
30.6 4.9 BG* Bulgaria Min. Soc.ins. (DB/L)
10 EBBINGHAUS
Most Southern and Eastern European countries have also minimum pensions in addition to targeted ones.
Among the Southern European countries, these are particularly widespread in Greece (69% pensioners at only 14%
average earnings) and Portugal (60% at 34%), while only one-third of Italian and Spanish pensioners receive these
minimum pensions (19% and 34%, respectively). Nevertheless, poverty is also only at a medium level, though Greece
has slightly lower poverty (12.0%) but this has to be seen in the context of the crisis-related depression of median
earnings. Quite in contrast, the Visegrád countries are doing particularly well in respect to poverty, particular Slovakia
(6.7%) thanks to its relative high targeted pension (22% average earnings), followed by Hungary (9.5%), Czech
Republic (12.5%) and Poland (14.7%), which have a mixture of low minimum or basic pension provisions (Poland has
a targeted benefit for 12% pensioners at 15%). Also, the other Eastern countries have relatively meagre basic or min-
imum pensions: the Baltic countries have the highest level of poverty (Lithuania 35.6%, Latvia 42.8, Estonia 43.8%),
but also the last new EU member states, Bulgaria (30.6%), Croatia (28.4%) and Romania (21.4), as well as Cyprus
(21.5%) and Malta (25.2%). In general, the minimum or targeted benefits in these countries are too low to prevent
poverty, and there are notable differences in recipient rates: these mirror the varying needs posed by the contribu-
tory SI. In these countries, the analysis needs to consider both tiers in order to understand the relationship between
income protection and material social exclusion.
6|MULTIPILLAR PENSION SYSTEMS AND OLD AGE INCOME
INEQUALITY
In order to explore the impact of pension systems on income inequality in old age across Europe, the analysis needs
to consider the multipillar architecture, particular the role of second-tier benefits in reproducing (or reducing)
inequalities acquired during working life in old age. While privatization has led to a shift in responsibility for retire-
ment income from the state to public actors (employers, unions and individuals), marketization reinforced
employment-related public benefits and private contributory retirement savings (Ebbinghaus, 2015). Moreover, there
has been a substantial increase in financialization, and the share of funded pensions has increased and with it the
dependence of pension fund capitalism (Ebbinghaus & Wiß, 2011). Great Britain, the Netherlands and Switzerland
are known for their pension fund capitalism, followed by several Nordic countries with substantial private and public
pension fund assets. A more recent development in Eastern Europe created mandatory funded pensions, while some
of the Continental countries, including Germany, added voluntary funded personal pensions to their mix. Table 2
provides an overview of the multipillar structure of second-tier pensions, indicating whether countries still have a
dominant SI logic or whether they have considerable occupational (OP) or private personal pensions (PP) that are
either mandatory or voluntary.
In respect to public schemes, the link between contributions and benefits depends on rules about necessary con-
tribution years for a standard public pension (in addition to the minimum rules). In SI schemes, the necessary number
TABLE 2 (Continued)
Type* Poverty Inequality Code Country
Public first tier
(cov. ×%AW)
Public/Private
second tier
35.6 4.9 LT* Lithuania Basic, target Soc. ins. (NDC),
MDC
42.8 5.0 LV* Latvia Basic, target Soc. ins. (NDC), MDC
Note: *Type: poverty/inequality; cov(erage) rate ×benefit% (%AW: average wage); c, contribution rate (%); CA, collective
agreement; DB, defined benefit; DC, defined contribution; L, lifetime; LP, lifetime points; y, years. Regime: ¬Liberal,
~Centre, *Eastern (CEE), +Southern, #Nordic.
Source: OECD (2017) and EU-SILC (2017/18).
EBBINGHAUS 11
of years for early and standard pensions is an important factor in determining pension benefits (Ebbinghaus &
Hofäcker, 2013; Hofäcker & Unt, 2013). The longer the period, the more it is a problem for those with interrupted or
shorter working lives; they will otherwise receive benefit reductions. Thus the number of years for a standard pen-
sion is crucial in many pension systems (Frericks, Knijn, & Maier, 2009), though detailed information is not always
available. According to the OECD, a few countries stipulate a relatively low number of years for a standard pension:
Spain and Slovenia 15 years, Italy and Hungary 20 years and Poland 25 years for full minimum benefit, though in
most other Bismarckian systems with defined benefits (DB) these range around 3035 years (Portugal, France, Czech
Republic). Standard pensions provide full benefits from 35 years (Greece, Spain, Danish ATP), 40 years (Luxembourg,
Italy, France 42.5) and 45 years (Austria, Belgium, Germany). Basic pensions also provide full benefits only with simi-
larly long residence (Finland: 40) or contribution records (UK: 44 years). There is no clear relationship between the
length of contribution years required for full DB and both income indictors. Slovenia, Hungary and Poland with low
inequality and poverty are among those with rather short contribution periods, but also Southern European pensions
have relatively brief periods, yet they have relatively high inequality. In general, there might be more complex inter-
action effects or compensation measures (for instance, unemployment and child credit, which increase nominal con-
tribution years).
In respect to second-tier (i.e., earnings-related or supplementary) pensions (see Table 2, last column), the main
differences are between public earnings-related pensions with pay-as-you go financing and funded supplementary
schemes (whether public or privately governed). Pay-as-you go systems provide some form of DB, though recently
notional defined contribution (NDC) principles (Weaver, 2016) have been introduced in public pensions (Sweden,
Italy). Several public pensions have been amended by benefit adjustments based on economic and demographic
development, making them closer to defined contribution (DC) systems. Among the funded pensions, both DB and
DC principles are common, though there is a trend towards DC schemes as underfunding of liabilities of DB schemes
has become more common (Bridgen & Meyer, 2005, 2009). In DC schemes, benefits cannot be predicted as they
depend on the future returns of the investment portfolio, whereas DB schemes promise a particular benefit relative
to former earnings, thus demographic or financial funding risks have to be shouldered by adjustments to contribu-
tions and benefits.
DB systems differ in their link between contribution and benefits: final salary DB (or those with best average
years) work in favour of white-collar employees with steeper age-related earnings and more likely grade promotions,
while benefits based on working-life contribution records (i.e., point systems) put more emphasis on longer working
life and average earnings. DB systems still exist in nearly all Bismarckian systems in Continental, Southern and Cen-
tral and Eastern European countries. The exceptions are Italy, Poland and Latvia, which have changed towards NDC
in their mandatory public second-tier schemes since the late 1990s (Greece followed in 2015). German public pen-
sions have a variant of a point system (and also the French private sector second-tier schemes), while similar
contribution-related schemes exist in Cyprus, Romania and Slovak Republic. Inequality is particularly low (as with
respect to poverty) in the Visegrád countries due to the relatively egalitarian SI and not yet fully developed funded
pensions: Slovak and Czech Republics are the most equal (both with 2.4 as S80/20 spread), followed by Hungary
(3.4) and Poland (3.5). Belgium (3.0) and Slovenia (3.4) have also relatively low inequality for similar reasons. Other
Bismarckian countries do have medium levels of inequality in old age; these include Austria (3.8), Germany and
France (4.1), and at a higher level, Luxembourg and Italy (4.8) as well as Portugal (5.3).
Among the Beveridge multipillar systems, many funded second-tier schemes have been changed from DB to DC
or mixed systems (Ebbinghaus & Gronwald, 2011; Holzmann, 2013). Switzerland has mixed DB occupational pen-
sions (mandatory for employees since 1980s) and the Dutch pension funds (provided by employers or collective
schemes) have been DB-funded, though these are becoming mixed schemes following the underfunding problems
after the 2008 crash. In the United Kingdom, the public state second pension was recently abolished, and DB occu-
pational pensions have increasingly shifted to DC, while personal DC plans with opt-out option were introduced in
the 1980s (Bridgen & Meyer, 2005) and automatic enrolment of firm-based pensions more recently. Sweden intro-
duced NDC for its public second-tier pension in the 1994 pension reform, and added a mandatory DC personal
12 EBBINGHAUS
pension (Norway followed in 2014) in addition to negotiated occupational pensions. Finland has a partially funded
but mandatory DB scheme (also Iceland). Denmark has negotiated DC plans as second tier above the basic pension,
and Ireland has only voluntary schemes (mainly DC plans). While inequality is much higher in British and Swiss multi-
pillar systems (4.6 and 4.8), similar to the German earnings-related pension mix (4.1), in contrast, the Netherlands
and the Nordic countries have been able to maintain relatively egalitarian income in old age. This is remarkable given
that these top performers have considerable funded pensions, yet a wide coverage of supplementary pensions, be it
through mandated or collectively negotiated funded pensions (Pavolini & Seeleib-Kaiser, 2018).
7|CONCLUSION: THE FUTURE OF RETIREMENT INCOME PROVISION
My comparative analysis demonstrated the double-edged effect of multipillar pension systems, cutting in both direc-
tions: poverty and inequality in old age. While the public pension pillar provides the main factor in reducing old age
poverty, the multipillar architecture shapes the reproduction of social inequalities. Public pension generosity of mini-
mum income provision still plays an important role with respect to old age poverty. To reduce severe poverty among
the retired population, minimum income security, in particular sufficient basic, guaranteed or minimum pensions, is
needed. This will become even more crucial given the interrupted and non-standard employment careers of the cur-
rent and future workforce (Hinrichs & Jessoula, 2012). The effect of privatization on inequality depends not merely
on the public-private mix but also on its particular design, including the marketization of contributory pension
whether public or private. These earnings-related pensions are essential for maintaining living standards for most
income groups, yet they reproduce social inequalities from working life into retirement.
For the comparison of pension systems, we used the classification of Bismarckian SI versus Beveridgean multi-
pillar systems, noting however also intra-regime differences in the extent of protection (lite or plus). The Beveridge
multipillar systems rely alternatively on second-tier state pensions and/or on private occupational and personal pen-
sions. The Bismarckian systems, designed to maintain status, have reproduced inequalities from their early days, and
recent reforms will reduce public benefits, leaving room for market-induced inequalities through voluntary private
pensions, unless state or collective regulation succeeds in increasing coverage and socially redistributive elements.
Income inequality is shaped by the overall architecture of second-tier pensions, in particular whether these are public
or private, (quasi)mandatory or voluntary, and DB or DC systems. While state pensions provide some redistributive
features, in particular through social credits for caring activities or unemployment, private pensions rarely achieve
social redistributive goals, unless tax subsidies, state regulation or collective agreements intervene.
My analysis has focused on two income indicators: relative old age poverty (60% level) and income inequality
(measured by top 20% to lower 20% earners). These have also their limitations in measuring the income situation of
older people by ignoring non-material deprivation and special needs. Moreover, the analysis presented here was
cross-national; it could thus explore only the association between income patterns in old age and pension features at
the system level. In order to understand the interaction between the socio-economic changes and changing pension
systems for the income situation in old age, longitudinal studies of past developments as well as prospective simula-
tions of future developments would be needed. In particular, while increased education and labour force participa-
tion has led to improvements through uprated pensions, the particular pension system also has an impact on
reducing poverty as well as reproducing inequality in old age acquired during working lives. Thus, further analysis is
needed to link these pension features to particular poverty and inequality outcomes over time. Moreover, the analy-
sis of income inequality needs to be more fine-grained by looking at gender, age, cohort and household composition
in order to evaluate pension outcomes. This would also require linking labour market developments, in particular
increased flexibilization over time, with particular outcomes in old age, not least postponement of retirement and the
share of working pensioners.
The potential future increase in old age poverty and income inequality, particularly for precarious social risk
groups, could result from past and ongoing reform efforts (see Hinrichs this issue). Trends include cut-backs of public
EBBINGHAUS 13
benefits, insecurity of funded savings and potential threat of unemployment among older workers. Hence, the public
system (including social assistance) remains the main protector against old age poverty not only today but also in the
future. Well-developed Beveridgean and generous Bismarckian systems have been able to lower old age poverty
thus far, but this may be more challenging in the future. However, increased old age poverty might augment political
pressures to raise basic pension levels or provide guaranteed minimum income in earnings-related systems. More-
over, inequality is more likely due to labour market flexiblization but also increased marketization of pensions. Thus
the tightening of benefit links to employment or contribution records in both public and private pensions will further
lead to inequalities between those who have had long-term full employment and those with precarious jobs and new
social risks. Most pension reforms have not addressed these challenges by compensating for such risks through
effective minimum income provision. Moreover, collective negotiations of occupational pensions and regulatory
intervention by the state are necessary to compress the in-built inequality-reproducing effects of private occupa-
tional and personal pensions. The current economic crisis and financial burden triggered by the Coronavirus pan-
demic will augment the fiscal sustainability pressures, and it will also lead to largely unintended repercussions for the
old age income situation of current and future pensioners.
ACKNOWLEDGEMENT
An earlier version of this paper has been presented at the ETK Seminar, Finnish Centre for Pensions, Helsinki, on
4 February 2020. The author thanks the two anonymous reviewers and special issue editors for their comments.
ORCID
Bernhard Ebbinghaus https://orcid.org/0000-0001-9838-8813
ENDNOTES
1
Using EU-SILC (2017/18) indicators, I map the cross-national patterns of at-risk-of-poverty(60% of median equalized
disposable income) and the spread between top and bottom quintile income groups (S80/20 indicator) for the most recent
available figures (an average of 2017 and 2018 if available).
2
A comparison of EU-SILC (2017) at-risk-of-poverty rates (aged 6574/75+) shows the largest age group differences in
Bulgaria (21.4/36.8), Cyprus (14.7/28.6), Estonia (18.4/51.2), Latvia (19.7/50.4), Lithuania (21.2/39.9), Malta (16.3/24.4)
and Switzerland (13.7/30.2).
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16 EBBINGHAUS
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While public pensions are usually the main source of income in old age, other sources of income may have various consequences for pensioners’ economic well-being across households and countries. In this study, we analyze how perceived income adequacy of older Europeans is shaped by the source and the income level. We hypothesize that the source of income can be related to a household’s perceived income adequacy beyond the money it provides. We distinguish four categories of income sources: (old age) pensions, other social benefits, work, and capital. We show that the source of income is related to perceived adequacy beyond the money it provides. Compared with pensions, income from other social benefits or work is associated with lower, and income from capital with higher perceptions of adequacy. Perceived adequacy of income from different sources varied further across the household income level. The results convey important messages to the policy makers. Pensions are a powerful policy tool, as they provide positive externalities beyond their monetary value. Attention should also be paid to the low-income households’ possibilities to save.
... Indeed, financialization is a complex, dynamic process that affects directly not only firms but also employees, thus, the underdeveloped links between the growing household financialization and the labour process offer a fruitful area for further investigation (Thompson and Cushen 2020). 3 At least since the early 1990s, financial institutions and capital markets have shifted their focus from non-financial firms to financing household spending, real estate investments and investments in assets by pension funds (Ebbinghaus 2021;Froud et al. 2010;McKernan and Sherraden 2008). Therefore, examining how workers' dependence on finance affects their compliance to the corporate financialization-induced reshaping of the labour process is of great importance. ...
... This trend largely reflects investments in riskier assets that involve higher returns in the face of sustainability challenges related to declining worker-retiree ratios due to ageing, cuts in employer contributions and the shift from pay-as-you-go to capital-funded schemes (van der Zwan 2017). Hence, this portfolio shift has made employees and pensioners future or current 'everyday' investors since most of their retirement income increasingly depends on financial market fluctuations (Ebbinghaus 2021;Langley 2008). Scholars have identified such patterns in a wide array of advanced and developing countries (Anderson 2019; Belfrage 2008; Bonizzi et al. 2021;Langley 2004;Macheda 2012;McCarthy et al. 2016;Natali 2018;Rodrigues et al. 2018;Saritas 2020;Waine 2001), but their focus is primarily centred on how the pension funds became financialized and the related political consequences, rather than on potential linkages with labour market dynamics. ...
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The current literature on financialization and the labour process focuses disproportionately on how corporate financialization induces the use of atypical work and largely overlooks the role of household financialization. This paper presents several mechanisms through which household debt and pension fund financialization increase the financial insecurity of employees, which, in turn, can curb their resistance to accepting such work contracts. To assess our arguments, we estimate the effects of corporate and household financialization on involuntary part‐time and temporary employment, using a panel dataset of OECD economies. Our findings provide robust support that financialization increases significantly non‐standard employment rates for the total workforce and women, but less for older employees.
... In the basic Beveridgean variant, full system transformation would involve providing all citizens with equal basic pensions which can vary by length of pensionable service, but are non-contributory and budget-funded, while the private sector would provide consumption smoothing (Ebbinghaus, 2021). ...
... Secondly, the question which system -public or private -would ensure sustaining the relative living standard more efficiently, given the circumstances in Serbia, in particular investment opportunities, as well as state capacities to regulate and oversee the private sector. Finally, the issue of old-age income inequality, which tends to be more prevalent in systems with a more substantial presence of private pensions (Ebbinghaus, 2021), as well as redistribution towards the more affluent, in view of tax exemptions and subsidies. ...
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The National Human Development Report 2022 for Serbia (NHDR), entitled "Human Development in Response to Demographic Change” provides a new perspective on the challenges of a shrinking and aging population in Serbia, pointing to possible innovative approaches to population policy.
... However, to what extent these non-contributory schemes, developed on top of existing employment-based pension systems, are effective on poverty alleviation still needs to be better understood. The discipline of social policy has focused on providing evidence from comparative perspectives (Been et al., 2017;Ebbinghaus, 2021;Möhring, 2015), while causal analysis on old-age poverty has been rare, particularly in the context of pension 'latecomers'. One might argue that poverty rates would apparently decline as a result of public pension expansions, but the degree of impact can be contested due to several impeding mechanisms. ...
... Comparative studies on European pensions provide good evidence that generous universal or targeted pensions tend to compensate for older people at high risk of poverty (Ebbinghaus, 2021;Möhring, 2015). Other studies from non-Western countries illustrate variations of policy designs (Arza, 2017;Barrientos, 2006) and outcomes (Barrientos, 2003) of non-contributory pensions implemented to address wide coverage gaps and high old-age poverty in such latecomer employment-based pension systems. ...
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Pension systems and old‐age poverty have been studied mainly from comparative perspectives, but causal evidence on the relationship between the two is still rare. This study investigates to what extent implementing non‐contributory pensions to a latecomer contributory pension system with a wide coverage gap alleviates old‐age poverty, based on the case of recent Basic Pension expansions in South Korea. Using nationally representative household data from 2011 to 2019, we employ a quasi‐experimental difference‐in‐difference design to estimate the impact of policy expansions on a set of outcomes measuring old‐age poverty, employment and household income components. The results show that three reforms in 2014, 2018 and 2019 have significantly reduced older people's poverty rate, and they were more effective in reducing extreme poverty. While policy effects after the 2014 expansion are robust in our set of alternative estimations, those after the joint reforms of 2018 and 2019 are less consistent and show signals of a stronger ‘crowding‐out’ effect on private transfer income than those after 2014. We found no convincing evidence that non‐contributory pensions discourage older people's labour market participation. Our findings contribute to the literature on public pension evaluations by elucidating how non‐contributory pensions affect old‐age poverty and tackle social and economic inequalities via various channels of income components, while also mitigating endogeneity biases observed in previous studies.
... Bismarck-type pension systems cover persons in gainful employment and aim to replace income and maintain the status acquired during working life. Beveridge-type pension systems cover the entire population, but provide often only a basic pension, which is financed out of taxes or tax-like contributions, often supplemented with well-developed occupational pensions and individual (pension) savings (Ebbinghaus 2021). Since secondpillar occupational pension incomes are a large component of the Swiss system, and data are available, these are included in the results presented below. ...
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This article explores how the Gender Pension Gap (GPG)—the relative difference in average pension received by men and women—might evolve in the future in various European countries, given past, current, and projected future labour market behaviour and earnings of women and men, and current pension regulations. The GPG reflects career inequalities between women and men, though these are partly mitigated by the redistributive impact of the public retirement pensions. They are further mitigated by survivor benefits. This study aims to document both mechanisms in the projections of the GPG. As the GPG varies widely across European countries, we analyse countries with a high (Luxembourg), high and low middle (Belgium and Switzerland Portugal), and low (Slovenia) GPG. We find that the GPG will fall significantly in all five countries over the coming decades. The fundamental drivers behind this development are discussed. In addition to the base scenario, we simulate two variants to show the impact of the Gender Pension Coverage Gap and of survivor pensions. Additionally, we project the GPG if current labour market gender gaps were to remain at their present level, and, conversely, if these were to disappear overnight. These alternative scenarios, one of which also serves as a robustness test, suggest that the future decline of the GPG is largely the result of labour market developments that have already happened during the past decades.
... Across OECD countries, population ageing puts enormous pressure on pensions systems, bringing attention to the economic well-being of the elderly (Ebbinghaus, 2021;. Although public pension income still constitutes the largest average source of old-age provision (OECD, 2019), the ongoing privatisation of pension systems increasingly shifts the responsibility of providing economic security from the state to the individual. ...
Thesis
Angesichts von Rentenkürzungen hat Vermögen als Alternative zu gesetzlichen Renten zur Alterssicherung an Bedeutung zugenommen. Vermögen ist jedoch ungleicher zwischen Frauen und Männern verteilt als Einkommen, wobei Frauen ein durchschnittlich niedrigeres Vermögen haben. Diese Ungleichheit existiert auch innerhalb von Paarbeziehungen. Diese Dissertation untersucht, wie Erwerbs- und Ehebiografien mit dem persönlichen Vermögen von verheirateten Frauen und Männern ab 50 Jahren zusammenhängen. Basierend auf der Lebensverlaufsperspektive entwickelt Kapitel 1 ein Modell zum Vermögensaufbau innerhalb von Paaren. Kapitel 2 untersucht Geschlechterunterschiede im individuellen Vermögensaufbau durch Erwerbstätigkeit in Ost- und Westdeutschland. Die Studie zeigt geschlechtsspezifische Wege des Vermögensaufbaus auf, welche sich besonders im traditionellen Wohlfahrtsstaatskontext von Westdeutschland zeigen. Kapitel 3 untersucht, wie Erwerbs- und Ehebiografien von Frauen mit der Verteilung von individuellem und gemeinsamem Vermögen innerhalb von älteren Ehepaaren in Westdeutschland zusammenhängen. Die Ergebnisse zeigen, dass früh verheiratete Paare starke wirtschaftliche Einheiten bilden. Jedoch kann die Ehe Frauen mit geringer Arbeitsmarktbeteiligung nicht vor ökonomischer Abhängigkeit von ihrem Partner im Alter schützen. Kapitel 4 analysiert den Zusammenhang zwischen den Erwerbsbiografien beider Partner und der Vermögensungleichheit innerhalb von älteren Ehepaaren in Großbritannien und Westdeutschland. Die Studie zeigt, dass eine ähnliche Arbeitsteilung zu unterschiedlicher Vermögensungleichheit innerhalb der Paare in beiden Ländern führt, was insbesondere durch die Rolle des Immobilienmarktes erklärt wird. Diese Dissertation verdeutlicht, dass das Zusammenwirken von Geschlecht, Partnerschaft und institutionellem Kontext während des Lebensverlaufs wichtig ist, um die Determinanten von persönlichem Vermögen und der resultierenden Vermögensungleichheit im Alter zu verstehen.
... Le flessioni economiche hanno sempre conseguenze negative sulle pensioni -come dimostrato nel caso della Grande Recessione del 2008. I sistemi pensionistici, il cui funzionamento potrebbe a prima vista sembrare immune da un evento pandemico, si trovano infatti a dover affrontare sfide di più lungo termine (Ebbinghaus 2021). ...
Article
This article explores the impact of COVID-19 on the governance of pension policy in the European Union (EU) and investigates the main characteristics of both stability and change in the EU strategies for pension policy. The governance of pensions has attracted the interest of many analysts. Pensions are in fact one of the milestones of the welfare state in EU Member States, while they have been the target of the EU strategy for the retrenchment and modernization of national social policies. The article focuses on three different areas of intervention: the European Semester; the European Pillar of Social Rights; and the Next Generation EU. Drawing from the extensive literature on institutional change, we argue that, whereas significant changes in priorities and instruments have occurred, these have been the result of a process of rapid evolutionary change through layering, suspension, and updating which has resulted in ideational and institutional bricolage. All these changes seem consistent with the potential revision of the EU strategy and priorities in pension policy.
... Similarly, we tested the adequacy of pensions which refers to overall pension replacement rate (RR) for current pension recipients, with greater RR indicating greater generosity. A recent crossnational comparison across European countries demonstrated the protective role played by a more generous pension RR in reducing the risk of income poverty among older households (Ebbinghaus, 2021). (d) Indicators for the financing and quality of the health care system: public social expenditure on health as a percentage of the GDP, the public-private mixture of financing the national expenditure on health and the European Consumer Health Index (ECHI) (Björnberg, 2016) that indicates how the consumer is served by the system. ...
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We examine the associations of a country’s macroeconomic and social policy indicators and diverse household characteristics with joint-income-wealth-poverty (JIWP) among households with members aged 50 years and over in 18 European countries and Israel. A multidimensional approach was used to integrate income and wealth by defining four groups of households: twice-poor, economically vulnerable (poor only by wealth), protected poor (poor only by income), and non-poor. JIWP was examined for two wealth concepts—the ‘net-worth’ and the ‘liquid-wealth’. Using the sixth wave of the Survey on Health, Aging and Retirement (SHARE), we employed multilevel multinomial models to study JIWP across countries. JIWP varied widely across countries, with both country’s features and household characteristics shaping the picture of poverty. GDP per capita was negatively associated with JIWP. Total (gross) social expenditure and public social expenditure per capita were negatively associated with risk of JIWP. Greater minimum guaranteed income among working age households and higher replacement rate of pensions among elderly households were also negatively associated with JIWP. Higher public expenditure on health and better quality of the healthcare system decreased the risk of JIWP, but heavier reliance on private financing of the healthcare increased it. Implications for research and policy are discussed.
... This empirical research aims in particular to determine the adequacy and sustainability of such funded pension arrangements worldwide. Indeed, recent scholars argue that the sustainability of a pension system depends on its benefit adequacy and strength when faced with economic shocks or significant financial risks (Ebbinghaus 2021;. ...
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We examine the future benefits of the Israeli privatized pension system, which is considered as a model of transition to funded pension systems worldwide. This research is based on an extensive database obtained from one of the largest traditional private funds in the market. The results paint a concerning picture regarding the adequacy of benefits and quality of life in old age. Israel’s radical privatized pension model signals a warning to other nations. We show that, even with high returns, most individuals cannot handle the magnitude of financial and labor risks accumulated during their career and retirement. We recommend more balanced government intervention as well as the use of risk-sharing mechanisms such as providing minimum pension guarantee and strengthening the unfunded social security pillar.
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National Human Development Report for Serbia, dealing with depopulation and policy responses.
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Recent reform efforts of advanced welfare states have attempted to reverse trends in early retirement and increase the statutory retirement age. This paradigm shift often occurred against the protest of unions, firms and their employees. As a consequence of expanding welfare states and as response to economic challenges since the 1970s early exit from work has become a widespread practice. Early retirement has been part of Continental Europe’s welfare without work problem, while the Scandinavian welfare states, the Anglophone liberal economies and the Japanese welfare society were able to maintain higher levels of employment for older workers. Since the 1990s, an international consensus to reverse early exit from work emerged among international organisations and national policy experts. Based on a comparative historical analysis of selected OECD countries, this study analyses the cross-national variations in the institutionalisation of early exit regimes and its recent reversal using macro-indictors on early exit trends and stylised information on institutional arrangements. Comparing the interaction of social policy and economic institutions, it reviews the cross-national differences in welfare state “pull” and economic “push” factors that have contributed to early exit from work and discusses the likely impact of welfare retrenchment and assesses the importance of “retention” factors such as activation policies for decreasing early exit from work.
Chapter
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In most European welfare states the introduction of a guaranteed minimum income scheme has meant an important step in welfare state development. In many countries, categorical minimum income guarantees have been developed for various specific groups. Among others, this is often the case for persons who have reached the legal retirement age. Much research has focused on minimum income protection for able-bodied persons at working age (e.g. Immervoll, 2009; Rat, 2009; Nelson, 2010; Van Mechelen, 2010). In contrast, minimum income guarantees targeted at the elderly have received much less attention in the international literature, with few exceptions (e.g. Pearson and Whitehouse, 2009). Therefore, the first objective of this chapter is to provide an introductory overview of the different types of minimum income protection targeted at Europe’s elderly and to document how these schemes have recently been reformed.
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The ongoing privatization of pensions-the shift from state to private responsibility for old age retirement income-raises fundamental issues of social and participatory rights. While pay-as-you-go-financed public pension systems face sustainability problems due to an ageing society, the recent financial crisis reveals the problematic nature of funded private pensions that fall short of expected returns. What have been the experiences in developed multipillar systems in providing adequate pensions for all? What can be learned for those pension systems currently under reform? This edited book compares the varieties of pension governance in ten European countries. It contrasts the experience of developed multipillar systems such as Britain, the Netherlands, and Switzerland with emerging multipillar systems in Denmark, Finland, and Sweden as well as the still dominantly Bismarckian social insurance systems of Belgium, France, Germany, and Italy. Each of the ten country chapters investigates how and why old age income responsibilities have been shifted from the state to employers, unions, and individuals. The country experts first describe the changing public-private pension mix and then discuss the particular features of the private (occupational and personal) pensions. They answer four major questions: who is covered, what kind of benefits, who pays, and who governs private pensions? In addition, three comparative analyses review the long-term institutional change from public to multipillar pension systems, map the cross-national variations in regulation and governance of private pensions, and investigate the consequences for old age income inequality in Europe.
Article
Recent reform efforts of advanced welfare states have attempted to reverse trends in early retirement and increase the statutory retirement age. This paradigm shift often occurred against the protest of unions, firms and their employees. As a consequence of expanding welfare states and as response to economic challenges since the 1970s early exit from work has become a widespread practice. Early retirement has been part of Continental Europe’s welfare without work problem, while the Scandinavian welfare states, the Anglophone liberal economies and the Japanese welfare society were able to maintain higher levels of employment for older workers. Since the 1990s, an international consensus to reverse early exit from work emerged among international organisations and national policy experts. Based on a comparative historical analysis of selected OECD countries, this study analyses the cross-national variations in the institutionalisation of early exit regimes and its recent reversal using macro-indictors on early exit trends and stylised information on institutional arrangements. Comparing the interaction of social policy and economic institutions, it reviews the cross-national differences in welfare state “pull” and economic “push” factors that have contributed to early exit from work and discusses the likely impact of welfare retrenchment and assesses the importance of “retention” factors such as activation policies for decreasing early exit from work.
Article
The article provides an assessment to what extent reforms of occupational pensions (OP) have fostered a “risk shift” or increased social protection dualism across countries. The essay focuses on workers, whilst previous research primarily analyzed provision for current pensioners. The empirical analysis confirms that in countries such as the Netherlands and Sweden, increased private pension or (OP) provision does not necessarily lead towards social protection dualism and comprehensive risk shifts. Britain continues to be characterized by strong social protection dualism and entrenched social divides, creating “social policy enclaves”. Divisions of welfare are also very likely to be a feature of the German pension system in the future. The latter two countries have witnessed clear risk shifts and processes of dualization. The pension systems in Austria, Italy, and Spain have not witnessed paradigmatic changes, and continue to be primarily based on public/statutory pension schemes. The idea that multi-pillarization in itself fosters major risk shifts and dualization has to be reconsidered. Under specific conditions, encompassing OPs can be functionally equivalent to public pension schemes. However, countries relying on voluntarism with regard to OPs coverage tend to witness processes of dualization.
Article
- Erwerbsarbeit bestimmt die Rentenhöhe – für Frauen wie Männer. In den Ländern Europas, in denen sich Frauen früh in den Arbeitsmarkt integrierten, ist ihre Alterssicherheit allein deshalb bereits höher. Deutschland gehört zu den Nachzüglern. - Geschlechtsspezifische Unterschiede in der Erwerbsbeteiligung zwischen gering Gebildeten sind überall größer als zwischen Gebildeten. Die Differenzen sind in Deutschland deutlicher als in manchen Ländern Europas. Armutsvermeidende, gerechte Rentenpolitik beginnt deshalb am Arbeitsmarkt. Sie muss Erwerbschancen für Frauen und Männer aller Schichten verbessern. - Die Rentensysteme der Länder, in denen sich die Geschlechterverhältnisse früher modernisierten, entsprechen dem »Beveridge-Modell«: Eine universale Grundrente, ergänzt von verpflichtenden Betriebsrenten, vermeidet Altersarmut effektiver und ermöglicht Frauen mehr Unabhängigkeit. - Die Rentensysteme der Länder, in denen sich die Geschlechterverhältnisse später modernisierten, sind einkommens- und beitragsabhängig. Diese »Bismarck-Länder« vermeiden Armut weniger effektiv und stützen tradierte Abhängigkeit. - Trotz Kürzungen sind Frauen in den Beveridge-Ländern besser vor Armut geschützt. Die deutsche gesetzliche Rente aber sinkt auf das niedrigste Niveau der untersuchten Länder, was besonders gering Gebildete trifft. Die Beveridge-Länder zeigen, dass zur Armutsvermeidung eine gesetzliche Mindestrente und verpflichtende Betriebsrenten gehören. Deutsche Sozialpolitik sollte daraus lernen.
Article
This study develops an empirically based typology of life course regimes using data on life histories of individuals in 14 European countries from the third wave of the Survey of Health, Ageing and Retirement in Europe (SHARELIFE). The concept of life course policy serves as a theoretical basis to describe the impact of welfare state regime differences and long-term historical developments on the structure of individual employment histories. Sequence and cluster analysis are applied to generate aggregate life course indicators for the degree of labour market inclusion, the degree of career volatility and the heterogeneity of employment histories. The resulting life course regime typology is only partly consistent with commonly applied welfare state typologies. Contrary to these, the life course regime typology also reflects long-term economic and political developments in the countries under examination. Large variation exists within the ‘Conservative’ and the ‘Post-Socialist’ welfare state types with regard to the standardisation and gender inequality of careers.
Book
'This brilliant book makes both a splendid contribution to the pensions debate and represents an important step forward in comparative research on complex policy issues, through its effective use of simulation techniques. . . this book makes a most important contribution to the debate.' - Michael Hill, Social Policy and Administration © Eddy S. Ng, Sean T. Lyons and Linda Schweitzer 2012. All rights reserved.
Article
Automatic stabilizing mechanisms (ASMs) in pension systems change the policy default so that benefits or contributions adjust automatically to adverse demographic and economic conditions without direct intervention by politicians. This is politically attractive to politicians because it facilitates blame avoiding. But it only works if politicians can refrain from ad hoc interventions when an ASM is triggered. Evidence from Canada, Sweden and Germany suggests a mixed record about their sustainability. Politicians may seek to evade or manipulate the trigger mechanism to avoid blame. A cartel of major parties that insulates pension policy-making from electoral competition can help to sustain ASMs.