Recommendations for pension reforms in Europe

To understand how different options for pension reforms could impact pension systems, we built a model with demographic projections and tested four types of pension reforms on Austria, Germany, Italy, and Poland.

The effects of policy reforms vary depending on the pension system and its generosity. Austria and Germany run “defined-benefit systems”, whereas Italy and Poland operate “defined-contribution systems”. 

So, when the goal is to improve the redistribution of pension benefits in Italy and Poland, we found that increasing the minimum pension can significantly improve the internal rate of return across all cohorts. Meanwhile, in Austria and Germany, we found that redistribution is more effective through progressive benefit formulas. An Austrian reform could never work in Italy. 

We recommend that governments tailor a country-specific pension reform plan to avoid creating policies which work against them. 

Keep in mind

1.    There is no single pension reform measure that alone will improve sustainability and fairness.
2.    Governments need to implement multiple policy changes to balance sustainability and redistribution.
3.    Country-specific plans are needed. Science-based models help with this.

General recommendations

Alleviate inequalities before retirement: The gender pay gap is translating into a gender pension gap. Working to dissolve the unfair disadvantages that women face in the labour market is therefore relevant for improving social inequality in older ages. 

Pension reforms should better account for the disadvantages that women (and others) face in the labour market, so that these inequalities aren’t compounded in retirement.

Remember the parts of the whole: To be the most successful in terms of improving sustainability and redistribution, pension reforms must account for people’s diverse life courses and how individuals will react and be impacted by changes. 

We need the best economic and demographic models to provide this information, since pension reforms concern the future.

Invest in communication: To help gain support from the public for pension reforms, governments’ communication strategies should include messaging that addresses individuals’ worries about such changes. 

Communication should highlight the flaws in the current systems, as well as details about how new policies will work better for people (and greater society).

Find out more

All about the FutuRes research on pension reforms in the Discussion Paper.

The colleagues at TU Vienna explain their work in the podcast (episode 1).