Private Pensions in International Perspective

Abstract

In the mid-1990s, in response to the spreading problem of financing public pay as you go (PAYGO) pension systems across industrialized countries experiencing population aging and economic globalization, the World Bank called for a three pillar model of pension policy to avert the old age crisis (World Bank 1994). The first pillar was to consist of minimal public sector defined benefit pensions bas ed mainly on PAYGO financing; the objectives were redistribution and poverty reduction. The second was to consist of earningsrelated or occupational pensions that could have public (government subsidized) or private financing arrangements; the objective was to promote or enforce saving. The third was to consist of private individual savings, with the objective to encourage individual, voluntary saving. Diverse mixes of these three policy alternatives already existed across advanced societies but the decade following the report has been characterized by more and more policy shifts across countries with different welfare state legacies towards more private and voluntary schemes. Meanwhile, the United States pension system was already based on a three pillar structure in 1994 and has tilted towards the third pillar vigorously.