Retrenchment without effect? Exploring the link between pension reforms and public pension adequacy of new retirees in seven European countries (1993–2020)

Abstract

Since the 1980s population ageing and economic change has led to cost-containing pension reforms in many industrialized countries. Research has focused on the institutional side of such reforms, but the impact of cost containment policies for real retirees’ pensions remains under-researched. This study addresses this gap. We use the change in projected pension replacement rates for average earners established by the OECD (2002–2019) as an indicator of institutional retrenchment and compare this with the change in the ‘relative pension level’ of real pensioners covering the period 1993–2020 across seven European countries. With data from five waves of the Luxembourg Income Survey and linear regression models we examine whether the average pension income from public and mandatory systems, expressed in relation to average wages (‘relative pension level’), of individuals in the earliest wave, least affected by institutional retrenchment, were significantly different from those of the later waves. The analysis was repeated for subgroups of men and women. We find that institutional change is no reliable predictor of relative pension level change. In the five countries where institutional retrenchment happened, real pension levels fell in only two, in the two countries where they increased no significant change in pension levels occurred. Women’s relative pensions have been more consistent with the expectations of the institutional reform literature than men’s. Our results suggest other variables have mediated the relationship between institutions and pension outcomes, most probably employment change. We conclude that outcome-based analysis is an essential complement to institutional approaches. For policymakers the long-term impact of pension reform is hard to predict, but our results suggest that relative real pension income has been more robust than feared by many.