The project aims at a broad-based comparison of national pension systems, covering all major branches of public pensions, employer-based pensions, and private provisions in the countries of the EU-15, the US and Switzerland. Rules governing coverage, revenues and benefits as well as the principles of taxation and tax incentives applying to the main sub-systems of old-age provision are taken into account. Building on the comparative study of existing institutions, common trends regarding current rules and future reforms are identified and reviewed. Finally, problems regarding the compatibility of national systems in the EU Internal Market are addressed, concentrating on the case of public “first pillar” schemes and employer-based “second-pillar” schemes.
Considering the broad range of tasks pursued with this project, most existing comparative studies are out-dated, incomplete and, in addition, contradictory. Thus, extensive research has been made regarding all institutional details that are covered by the project has been. Results are mainly presented in terms of tables and synoptic overviews in order to facilitate public use. Conclusions regarding tax rules that are consistent at a national level and compatible internationally are drawn taking into account systemic features of national tax systems as well as economic effects of taxation in an international context. Here, particular emphasis is placed on potential obstacles for the free mobility of both labour and capital within the EU internal market.
Next to surveying the existing literature and, in particular, existing studies with cross-country comparisons, the main sources of up-to-date information are given by web sites and other publications of, or direct contacts established with, international organisations, national social security administrations, ministries, central banks and a large number of relevant private-sector organisations.
Across all the countries considered, old-age provision is based on the conventional “3-pillar approach”, with different weights being attached to public pension schemes, employer-based pensions and fully private provisions. Public schemes generally play a key role in defining the scope for retirement income to be derived from the two other pillars. Thus, the distinction between the “social insurance” systems prevailing in continental Europe and Anglo-saxon “social security” schemes characterises an important dimension of heterogeneity of national pension systems in an international context.
With respect to public pensions schemes, the following features are compared across countries: membership rules, financing mechanisms, tax bases and contribution rates, share of expenditure nourished from the general government budget, statutory retirement age, benefit reductions in cases of early withdrawal, standard benefit formulae, indexation of benefits, non-contributory benefits related to periods of unemployment and child-rearing activities, minimum pension guarantees, rules governing disability pensions and survivor pensions. Important trends in current reforms are given by measures to reduce the level of pension benefits in general over the long term; measures to pre-fund for future pension entitlements; measures to strengthen the tax-benefit link when determining individual pension claims; measures that aim at universal minimum pensions benefits which are not related to an individual’s work biography, including the introduction of child-related pension benefits.
For occupational pensions system, particular attention is paid to mandatory v. voluntary provisions and to “internal” v. external ways to administer and finance employer-based pensions. A series of country reports provides information provides information regarding the relative importance of second-pillar pensions within a given country’s overall system of old-age provision, the impact on national financial markets, recent trends in re-allocating return risks („defined benefits“ v. „defined contributions“), eligibility criteria, and the portability of pensions. With respect to supplementary private provisions, the study concentrates on life insurance and private annuities which, with some variation in the legal framework, exist in all the countries considered. In order to compensate individuals for reduced claims against public pension schemes, strengthening second and third-pillar pensions is an issue in virtually all major OECD countries. In spite of common trends in terms of some basic characteristics, European pension systems are divided by a fundamental split regarding the „public–private mix“ of the overall portfolio of old-age provision.
Internationally, the taxation of public and employer-based pensions is mainly directed at taxing final benefits, while contributions and premia as well as current capital returns, if any, are largely exempted from taxation. With respect to public pensions, however, quite a number of special tax allowances make sure that benefits are effectively untaxed in many countries, especially if their level merely represents a minimum pension guarantee. Exempting contributions and capital gains from taxation, but taxing final pay-outs represents a form of taxation which is neutral with respect to choices between today’s and tomorrow’s consumption. In the context of systems of a comprehensive taxation of current income, however, this approach leads to selective tax advantages for instruments of old-age provision over other forma of saving. Potential reasons for introducing privileges of this kind are: the disincentives with respect to precautionary saving that are due to public minimum pension guarantees, myopia of individuals as well as market failure in annuities markets as a result of adverse selection.
Inside the current EU, national pensions systems can no longer be considered entirely separate sets of institutions. Building on the EU treaty, internal borders should be immaterial for activities in the Single Market, where free mobility of labour and free movements of goods, services, and capital must be warranted. The coexistence of different pension systems and tax rules that are defined on a national level creates potential obstacles in all these areas. As far as public pensions are concerned, the current EU-level legal framework removes all relevant barriers in terms of competing obligations regarding membership and contributions as well as in terms of pension portability. A similar framework for (voluntary) systems of occupational pensions is largely lacking. Here, current rules stress the principle of “non-discrimination” of mobile workers, define some conditions for drawing on pensions on a cross-border basis, and make sure that workers who are sent to other member countries on a temporary basis cannot be subjected to employer-based pensions schemes other than those in the sending country.
Current proposals of the EU commission aim at some co-ordination of national regulations that may alleviate a mutual acknowledgement of national standards set for occupational pension schemes. Refinements may be considered for the weak rules intended to govern fund management. Also, the legal framework should not be extended to cover “internal” promises regarding future pensions made by the employers themselves. Expanding the scope for cross-border supply of the financial services related to occupational pension schemes is limited by the fact that the legal framwork for labour markets and social policy is clearly a responsibility of national authorities. The idea of developing “European institutions of occupational retirement provision” for multi-national corporations may be promising for some groups of employers. Given the current stage of EU integration, however, institutions of this kind are not suited to move towards a uniform structure of employer-based pensions across all member countries.
Considerable obstacles to fully establishing a Single Market arise from the differing tax treatment of all form of old-age provision in different countries. Current efforts of the EU commission are directed at avoiding double taxation as well as non-taxation which both may result from uncoordinated tax laws. Neither a general adoption of a deferred taxation of pay-outs - absent full tax harmonisation - nor a series of bilateral agreements („double taxation conventions“) offers a perfect solution. Since, from an economist’s perspective, there are important reasons for taxes to be levied in the source country as well as in the country of residence, the right to tax instruments of old-age provision might be split between the jurisdictions involved in such a way that double taxation is effectively ruled out.
R. Fenge, A. Gebauer, C. Holzner, V. Meier and M. Werding (2003), “Alterssicherungssysteme im internationalen Vergleich: Finanzierung, Besteuerung, Leistungen”, ifo Beiträge zur Wirtschaftsforschung, Vol. 10 (English summary; main text available in German only), Ifo Institute: Munich.
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