Post-war Second World War pension funds were developed on the basis of two different logics: the Bismarckian (defined contributions) in Germany and the Beveridgean system (defined benefits) in England. Today, there are hybrids of these systems but all have established minimum pension levels or social minimums.
Reforms have led to the development of funded pension systems alongside the pay-as-you-go (PAYG) systems, where active workers’ contributions pay for pensions of retirees, as seen in France, and funded systems, where contributions are accumulated in pension funds that invest in financial securities for future benefits. There is no longer a typical pension system as each country has its own specific features and various degree of complexity.
Since 1980, the Eurozone has been grappling with significant demographic challenges due to an aging population, which has increased the financial demands on pension systems, particularly in countries using PAYG models. This demographic shift is primarily driven by declining birth rates and rising life expectancy (Figure 1). Additionally, the COVID-19 crisis has further exacerbated fiscal deficits and public debt, leading to increased pension expenditures across the region.
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