Pension Economics and the Four Pillars: Success in a Never-Ending Challenge

3. History of the four pillars concept

As early as the mid-1980s, The Geneva Association, then lead by its visionary Secretary General Orio Giarini, was conscious of changing demographic and financial trends. It became concerned with the crucial issue of the future financing of pensions and with rethinking some of the terms of social security. The dependency ratio of non-active retirees to the active population was about to erode rapidly and will have gone from 1 to 5 in 1990 to less than 1 to 3 in 2020. For the Association, however, demographic trends — especially increased life expectancy — could be seen as positive if only we were able to devise ways of enabling our ‘ageing’ populations — most of whom these days enjoy good physical and mental health (P. Morniche) — to make a valid economic and social contribution to the functioning of our service economies over the decades to come.
The Geneva Association, through its work on the new service economy (PROGRES and ASEC Research Programmes) with the new variables and paradigms associated with that economy, was able, before most, to see that these demographic and financial constraints were occurring in a new economic context where four jobs out of five were in service functions. It was also becoming widely recognized that such service activities typically require less physical demands and greater mental abilities, which meant that, in principle, workers could easily remain productive longer, especially if retirement conditions could be made more flexible and adequate continuing training, among other things, made available. This meant that the problems posed by demographics could perhaps be turned into opportunities if older workers could be kept working later on a flexible basis. We have also been conscious that this new challenge was about to affect the entire planet. According to the Economic and Social Council of the United Nations, “this issue will soon be a worldwide one since in 2025 over 70% of the ageing population (60s and over) will live in the developing countries”.
When Orio Giarini as Secretary General formally launched ‘The Four Pillars’4 research programme on work and retirement in 1987, two main objectives were defined:
1) the consolidation of the sources of pension financing; and
2) the promotion of a new design for retirement and of a fourth pillar additional to the first three pillars.
More recently, we have included a third objective which is the consequence of objective 2: work beyond 60 and the adaptation of working conditions to longer working lives.
“Achieving an entirely new design for retirement is every bit as necessary as consolidating the sources from which it is to be funded”. Denis Kessler, Former President of the French Federation of Insurance Companies (FFSA), Paris.

4. Consolidation of multi-pillar pension financing

The intention of the Geneva Association has been that first pillar pensions should continue to play an important part for the majority of our populations, but that occupational and personal pensions, by becoming normal practice — in some cases even compulsory — should be used to offset any relative fall in the value of 1st pillar pensions in future decades. Our approach has therefore been to study the advantages of supplementing public social policies (one of our epoch’s most significant achievements) by private solutions, and to address the shift in the balance between the public and private sectors by stressing the importance of developing the latter. The capitalization-oriented second pillar was also seen as making for greater adaptability in the context of the increasingly common flexible career which is a feature of the new service economy and the cross-border labour market. It should also be noted that we have always advised a solid regulatory framework indispensable to widespread development of occupational pension schemes.
The Geneva Association’s primary purpose in this field was to stimulate reflection among its membership, as well as participating in academic and public-policy discussions, about the crucial changes affecting the first three pillars. Indeed, the development of a capitalization-based second pillar (already compulsory in certain countries like the Nordic countries, the Netherlands, Switzerland and Australia), became progressively the focus of international seminars organized at the Association’s initiative or with its assistance, received the attention of the European Commission and the OECD, and was the subject of numerous publications, in particular:
• Studies on the Four Pillars, The Geneva Papers on Risk and Insurance, No. 55 (April 1990), No. 62 (January 1992), no. 73 (July 1994).
• Etudes & Dossiers, Transition to Retirement: The Four Pillars of Retirement, No. 125, August 1988; Les Quatre Piliers et la Retraite — Rapport pour l’Association de Genève, by D. Kessler, No. 144, March 1990; The Fourth Pillar and the UK Insurance Industry, No. 145, April 1990.
• Studies on the Four Pillars, The Geneva Papers on Risk and Insurance, Vol. 24, No. 4, October 1999, and Vol. 26, No. 4, October 2001.
While national pension systems across the European Union were dissimilar in many respects, recent reforms have made for convergence and a better balance in the shape of multi-pillar arrangements.
Recently we developed an important and positive collaboration with the Center for Strategic International Studies in Washington, DC — Patrick Liedtke (Secretary General of The Geneva Association) is a commissioner — which launched the Global Initiative on Ageing (GAI), organized a series of conferences and prepared an important report, Meeting the Challenge of Global Aging — A Report to the World Leaders, 2002 (
“The idea of extending the portion of the older population that remains economically active (the fourth pillar), either in full or part-time employment, is a prominent issue”.
Alan Walker, Report of the European Observatory “Older People in Europe: Social and Economic Effects”, 1993.

4 The term ‘fourth pillar’ owes its origin to the fact that in most countries the funding of pensions is drawn from resources from three pillars:
– the first pillar is the compulsory state pension, based on the pay-as-you-go principle;
– the second pillar is the supplementary occupational pension normally based on funding;
– the third pillar is made up of individual savings (personal pensions and investments as well as life insurance products).
We called our research programme The Four Pillars because, since the beginning (1987), we consider the fourth pillar a fundamental part of the future financing of pensions and more widely of social security.

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