Pensions after the financial and economic crisis: a comparative analysis of recent reforms in Europe
The global financial and economic crisis has affected pension schemes in Europe in three major ways. Firstly, these schemes have served as one form of ‘automatic stabiliser’ – in other words, as a means of mitigating the potential social consequences of the negative state of the economy – and their use to this end is expected to increase social expenditure in many EU countries. Secondly, the worsening economic situation has entailed new challenges to the financial sustainability of social protection: growing unemployment and negative GDP growth represent a loss in revenues for welfare programmes and may thus lead to the deterioration of public budgets. Thirdly, the financial shock has dealt a severe blow to both private fully-funded schemes and public
reserve funds.
This paper has two main aims. First, it assesses the initial impact of the financial and economic crisis. In relation to first-pillar pension schemes, short-term effects have been limited. PAYG (Pay-as-you-go) schemes are largely immune from short-term financial crisis, although reserve funds have suffered losses.1 Yet the long-term effects on first-pillar schemes may be also important and require further adjustments if their financial viability is to be secured. As for second- and third-pillar schemes, fully-funded schemes have experienced more direct effects since investment losses and negative rates of return have been massive, while interest rates have been low. Pension funds suffered from these trends (but subsequently started to recover). Secondly, the paper compares the reforms introduced in four different European countries: France and Sweden, representing social insurance pension systems (firstand second-generation), and the UK and Poland which are representative of multi-pillar pension systems (first- and second-generation). All the countries under scrutiny have been affected by the financial and economic crisis (albeit with some differences in the magnitude of economic recession and budgetary strain) and have, in its wake, introduced new legislative measures.
Section 1 briefly summarises the key features of pension models in Europe. Section 2 sheds light on some indicators of the impact of the financial crisis and economic recession on pensions policy across Europe (and in the broader international context). Section 3 focuses on the specific problems experienced by the four countries and describes the most recent reforms, most specifically with reference to their outcome and the political debate (the position of the different actors). Section 4 draws some preliminary conclusions, while showing how social and economic/financial problems have moved to the core of the pension reform debate and what consequences for present and future pensions have been generated by the crisis.