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Better Safe than Sorry - Individual Risk-free Pension Schemes in the European Union

Author(s): Marga Peeters

Journal: Contemporary Economics
ISSN 2084-0845

Volume: 6;
Issue: 3;
Start page: 1;
Date: 2012;
Original page

Variations among the diverse pension systems in the member states of the European Union (EU) hamper labor market mobility across national borders and also among firms within the countries of the EU. From a macroeconomic perspective, and in the light of demographic pressure, this paper argues that allowing individual pension accounts instead of collective pension plans would greatly improve labor market flexibility and would thus enhance the functioning of the monetary union. I argue that working citizens would benefit by having their pension funds accumulating in individual pension savings accounts for three reasons. First, citizens would have a clear picture of the accumulation of their own pension savings throughout their working lives. Second, they would pay minimal extra costs, and third, they would not be subject to the whims of governments or other pension fund managers after they retired. This paper investigates the feasibility of individual pension accumulation plans under various parameter settings by calculating the value of the pension saved during a working life and the amount of the pension dis-saved after retirement. The findings show that there are no reasons why the EU and the individual member states should not allow individual pension savings accounts. This approach, as an alternative to forcing workers to participate in one of the various mandatory collective pension schemes that exist in different countries in the EU, would have macroeconomic benefits and would also provide a solid pension program that can enhance mobility.
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