Public Finances and the Interplay Between Public and Private Pensions

The interaction between public and private pensions involves some important features that risk undermining the support for the privately funded pension schemes and reduce pension contributions. On the one hand, because of means-testing of public pension benefits, the effective return on occupational pension savings is low, especially for low-income groups close to retirement age. On the other hand, a large group of people do not possess any substantial pension savings at retirement and are therefore fully reliant on public pensions. In order to address these two concerns, political agreements to impose mandatory pension savings on recipients of social benefits and to support the incentive for pension savings for low-income groups have been made in recent years, with full implementation in 2020. In this chapter we evaluate whether these new reforms appropriately address the concerns.