The Four Pillars Programme of The Geneva Association is a research programme set up in 1987 with the aim of studying the key importance in the new service economy of Social Security, Insurance, Savings and Employment. The programme focuses on the future of pensions, welfare and employment. The main reasons for this programme have been:
1. Complementarity between social security and insurance.
2. The changing perspective of the welfare state, employment and the life-cycles.
3. Changing demography and its financing impact.
From the outset our Association has considered demographic trends — particularly the increase not only of life expectancy but above all of health expectancy — as a positive challenge for our communities and firms and the workforce within them. Therefore the new challenge meant rethinking retirement in the context of a new design for employment across the entire life-cycle so that people, rather than being relegated to a role of passive consumers, could perhaps work later in life, remain socially integrated and continue to make a valid contribution to our society. Our main objectives have been to:
• Consolidate a multi-pillar system — study the conditions of 1st, 2nd, 3rd pillar pensions
• Promote the development of a 4th pillar — flexible extension of working life (‘Live longer, work longer’)
• Encourage the adaptation of working conditions (training, working time, pay and pension conditions, etc.)
• Facilitate multiple solutions to the challenge of an ‘ageing’ society.
In this article I would like to summarize, first, pension reforms which have been adopted over recent years in Europe, then the 4th pillar proposal and changes in senior employment.
2. Pension Reforms in a Long-Life Society
The term ‘the four pillars’ refers to the principle that most pension systems are currently based on three pillars (1st pillar: public pensions; 2nd pillar: funded occupational pensions; 3rd pillar: private pensions, life insurance, savings). We have studied the importance of consolidating the various sources of pension financing, what we call the pillars. Contrary to many who were advocating only private pensions we have been in favour of:
• maintaining them at a good level with adaptation, the 1st pillar (financed by pay-as you-go),
• developing 2nd and 3rd pillars (financed by funding) and
• we have studied the possibility of adding a 4th pillar which is the idea of continuing working later and getting a complementary income.
Figure 1: Share of income from the four pillars, as a percentage of total income of retirees (average European case)
Source: The Geneva Association.
Indeed the above graph shows the current sources of income for pensioners. This is a picture of an average situation in a average European country. As you may know in Germany and Italy public pensions are very important and 2 or 3rd pillar pensions are not yet very developed. On the contrary in the UK and Denmark public pensions are low but 2nd or 3rd pillars are important.
In 2000 the 4th pillar (I refer here only to the declared work and not to quite frequent black-market work we observe, for example, in Italy and in France) was very small because our economies have been marked over the last 2 or 3 decades by early retirement. More and more we have observed an important social paradox between an earlier exit age from the labour market and an increasing life and health expectancy, and therefore an increasing retirement expectancy.
3. Retirement Expectancy
While at the beginning pension schemes were set up to provide a replacement income during a short period (on average 5 years) and after the Second World War improvements allowed them to finance a retirement of around 10 years, today what I call the ‘retirement expectation’ has increased to an extremely long period: on average 20 years for men and 25 for women. But retirement expectancy is also quite different in our countries. The difference between Sweden and France is revealing and there is room — a lot of room — for improvement in several European countries.
Table 1: Retirement expectancy in a few European countries
Source: OECD 2004 and ouw calculations.
Both increases in life expectancy (and in good health) and, on the whole, excellent coverage by pension systems of the retiree population must be seen as triumphs of the 20th century. Originally designed to cover only a very few years (5 to 10 years after the 2nd world war), more recently these systems have come to be expected to provide for almost two decades of replacement income. New conditions have made it necessary to modernize pension systems and to adapt them to the demographic evolution and to the financial challenges the latter entails. However, in most OECD countries today, levels of protection of the older population are very high. It has been recognized that poverty among the old is something of the past in most countries.
The Strategy of the Four Pillars in a Long-life Society: part of this article is based on the editorial ‘Over a Decade of Pension Reforms — Where Are We Now?’, by the author, The Four Pillars Newsletter, no 40, March 2007.
Geneviève Reday-Mulvey: Head of project of the Four Pillar Pension Initiative, The Geneva Association. Author of Working Beyond 60 — Key Policies and Practices in Europe, Plagrave, 2005. Email address: Geneviève_reday@genevaassociation.org Website: genevaassociation.org
Tags: retirement, senior employment, the Four Pillars