Endorsing Sustainable Pension System Design through Multi-Pillar Models

Many of us are aware of the benefits of saving for old age. Throughout the history of social security, public pension schemes have been serving as a protection net for elder citizens, preventing poverty and reducing inequality.

Mitigating the risks of economic and social insecurity by transferring parts of existing income to the “dry season” of old age is the idea that lays the ground for pension systems across the world. These systems differ between countries, but usually comprise similar elements such as basic social pensions and supplementary voluntary savings.

Although public pension schemes have been historically predominant, throughout recent years many states have introduced major modifications to their systems of old-age provision. Seeking to reduce the burden, a large number of countries have scaled-down national pension provision, opening the way for private pension schemes and individual contributions.

There are multiple models that have been suggested to describe a system of long-term provision for old age. One of the most renowned is the World Bank’s Multi-Pillar Model. Initially, it consisted of three pillars and later extended to 5 pillars. The main idea behind the multi-pillar pension system is the possibility of combining different social protection tools and utilizing their functions to maximize system benefits. Multi-pillar designs also provide greater flexibility than mono-pillars and have the ability to better address the needs of their target groups.

It is important to acknowledge that there is no “one size fits all” solution to the complex array of pension issues. Therefore, there is no single reform model that can be applied universally in all settings.

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