Pension Systems: A Comparative Perspective

Abstract

With the retirement of the baby boom generation beginning in the first decade of the 21st century and increased global competition between rival systems of economic governance, pension systems are an important and growing area of research in economics and management. The relationships between social security (pillar I), sponsored pension and retirement plans (pillar II), and individual retirement income accounts (pillar III) are essential to any understanding of pension systems. There are significant differences between the Anglo-American world, much of continental Europe, and Latin America with respect to the structure of relationships between the three pillars of retirement income. Moreover, there are significant differences between whole sets of nations with respect to the current funding of future pension liabilities. While the Anglo-American countries do not all fully fund social security entitlements they do rely upon the full funding of pension fund (pillar II) obligations whereas continental European countries tend to rely upon unfunded social security (pillar I). These funding arrangements have had significant consequences for the financial management of large corporations, and for the structure of the related institutional investment industry. Anglo-American pension funds and the financial services industry have accelerated the process of financial dis-intermediation, in part contributing to the growth of the global market for corporate control. Even in countries not contemplating changing over to funded retirement income plans, the transformation of Anglo-American economies through the actions and investment strategies of pension funds has been noted. In particular, this transformation has not been lost on continental Europe and the transition economies of eastern Europe as they redefine their social security and pension systems in the light of the looming demographic crisis.

JEL Classification: G23, G28, L33