This study analyses the funding sources, gives an overview of budget cutting strategies and evaluates how likely the funded pension system secures a satisfactory pension. The countries under focus are EU member states that have transitioned to multi pillar system in the last decade ie. Hungary, Sweden, Poland, Latvia, Estonia, Lithuania, Slovakkia, Bulgaria and UK.
Most countries have replaced state pension to (partly) funded pension in order to guarantee long term sustainability of their pension system. In spite of some broad similarities in the reform strategy, the reforms have been undertaken in rather different fiscal circumstances.
In Bulgaria, Hungary, Poland and Slovakia the PAYG scheme was already in deficit. On the other hand, the pre-reform fiscal situation in the Baltic countries was more favourable as a result of economic developments. Sweden has had a large reserve fund amounting to over 30% of GDP at the outset, which, as a result, facilitated designing a particular reform and cushioning transition costs within the system.
Hungary, Lithuania, Estonia and Slovakia allowed the broadest choice, permitting all workers to join the funded pension scheme. Other countries set various age limits. Bulgaria and Poland funded the change from state budget. In some cases, funds were obtained from loans. In Poland, Hungary, Estonia and Slovakia funded pension constituted the biggest part of GDP.
The analysis shows that the reform has not significantly affected pensioneers today. However, in Bulgaria, Estnonia and Lithuania pension will decrease for those in the future who have been absent from labour market for some time. This affects mostly women on maternal leave. The suffieciency of pension in the future depends on investment success rate. This, however, includes several risks.