Around the World

These governments took action—although some would say, a little too late—and implemented viable solutions to benefit the population. Countries such as Canada started to increase their contribution requirements in the 1980s and, in the 1990s, began to partially fund the benefits with excess contributions. Following a European Union (EU) directive, many countries in Europe decided to delay the normal retirement age to 67 in order to increase the number of contribution years and reduce the number of benefit payment years. Clearly, this directive had broader objectives than simply improving the various social security programs—it was also intended to address the future decrease in productivity of European countries. Some countries, such as Germany, both increased contribution levels and pushed back the normal retirement age.

France and Switzerland have long offered cash balance-like mandatory programs, so their pension systems are much less affected by this critical shortfall in taxpayer contributions. And, a few years ago, Italy decided to impose the funding of its mandatory retirement allowance, which used to be an important pay-as-you-go liability resting on the employer’s books. Protecting employees against the potential bankruptcy of employers is likely at the root of these modifications.

Even typically paternalistic governments introduced and supported DC plans in their social security programs, thereby transferring the investment risk to the individual Consistent with the government’s role to protect its citizens, more governments also required the funding of pension promises. All of these decisions certainly influenced, and are still influencing, the ideas and mentalities of other governments and employers.