Research Paper on Pension Systems

Introduction

In the face of shrinking labor markets, high economic dependency ratios XE "dependency ratios" and a general decline in countries' economic performance, the general welfare and standard of living of many global citizens declined in proportional dimensions. The pension systems emerged as a result of the need to cushion economies from high dependency ratios that resulted from economic slowdowns. The scheme is financed by contributions made members in their pre-retirement ages into a pool which is later on shared in specific proportions to these individuals upon their retirement (Anspach, 2018).

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The trends in development and features of supplementary pensions greatly vary from one county to the next. In addition, the schemes' contribution to social protection or their impact on capital markets tends to elicit similar variations. This disparity, particularly among European countries, is prevalent despite many countries in the European Union adopting legislation governing the pension systems at the same time in the onset of the 20th Century. In embracing supplementary pension systems, these nations various institutions and mandated them with the responsibility developing structures to facilitate pension payments to the large portion of wage earners and salaried employees in the public and the private sectors (Tamburi, et al., 1994, p. 3). Still, the disparity is disproportional with different countries embracing unlike systems in their pension provisions

Italy is one country that embraces different system from various European counterparts With over two decades preceding the developments that instituted regulations and instruments for supplementary pension schemes in the county, the Italian private pension funds are still eliciting different trends to majority of international pension schemes such as those of the United States, France, Germany, Great Britain and Spain, whose institutional features and financial structures are similar to its own (Cesari, et al., 2008, p. 21). Italy's supplementary pension funds began operations in the late 1990s. At the end of 2016, the supplementary retirement schemes had totaled 3.3 million members with diversity into occupational pension funds, open pension funds and Individual retirement policies (Cesari, et al., 2008, p. 24). In spite of the diversity of supplementary pension schemes, the Italian industry remained underdeveloped compared to various pension systems across Europe (Cesari, et al., 2008, p. 24).

Development of Supplementary Pension System

A fundamental question among many economists usually involves the reasons that necessitated the establishment of supplementary pension systems. Why was the supplementary pension system instigated in the first place? Resolution of such questions often debunks the needs of supplementary pension systems, and help in developing and understanding into their structural framework and performance. Previously the social security systems in the first pillar of the pension system were the most prevalent forms of social security protection. However, these systems were based on solidarity notions and were generally operated on a pay-as-you-go basis. It thus followed that the reserves in these systems were not always proportional to the pension's future commitments. The immediate problem that arouses was that the solidarity challenge in it was difficult to maintain these systems without overstretching them. Still, there were persistent arguments that the private pension schemes in place would suffice without the development of a third scheme, which turned out to be the supplementary system (Gollier, 2000, p. 5).

Secondly, the proponents of this scheme had various arguments in formulating supplementary pension. First, they reached on a common understanding that this system would ensure the providence of retirement benefits to different groups of persons, even those previously argued to high risk considering their high-income level bracket. Secondly, there was a notion that employers had a certain level of responsibility towards their employees irrespective of their income levels, as such, it was important for every employee to be secured, including those in the lower wage bracket. Third, there was a general concern of an increasing deferred income, arising from the compensation of workers, which consisted of different elements other than cash wages, to cushion employers from risk presented out of this development, there was a need for the establishment of a third scheme - the supplementary pension system. Finally, there was a general argument that these pension systems would enable the possibility of the scheme providing higher returns to their members by acting jointly with other stakeholders to cut down on the financial risks that would otherwise impede to such benefits (Gollier, 2000, p. 6). For the reasons highlighted above, among many others, emerged the basic need to develop the supplementary pension systems in the EU and other countries across the world.

General Pillars of Pension Schemes

Before delving further into more discussions, it is important to underscore the general pillars of pensions systems. Generally, there are three pillars of the scheme which highlights the general model. The pillars were first introduced through a World Bank proposal pitting the need to have three columns of the system.

The first, of the three pillars, is the Government-run public pension system that is responsible for providing social security benefits to retirees within these countries. In essences, its main goal is to provid...