European pension systems, post-reform
18/04/2011
There are two ways of reforming pension systems: either retain the system and change the parameters and some of the rules, or change the system radically.
Some European countries have decided on the second option, and have introduced notional account systems. This is the case in Sweden, Italy, Poland and Latvia.
These are compulsory defined-contribution schemes, in which the contributions paid by each scheme member are held in a theoretical individual account. On retirement, the beneficiary receives a pension directly proportional to the contributions made, revalued to reflect growth. From the contributor's point of view, the notional account system is similar to a capitalization scheme, where the yield is indexed against economic growth; nevertheless, this is actually a distribution scheme in which contributions are used immediately to pay pensions.
However, Sweden and Italy also have a state minimum pension scheme, and in Sweden and Poland, the system is complemented by a capitalization scheme.
Other countries have attempted to retain their existing systems by modifying their parameters: increasing the retirement age, reducing benefits and, in some cases, increasing contributions.
