The third principle for giving structure to the pension system is in different governmental welfare regimes. Traditional denominations are the Belveridge system with its accentuation on basic security and the Bismarck system with its accentuation on a pension system closely tied to the terms of employment. The Swedish public pension system in its nineteen forty eight’s formation is an example of the Belveridge system, and the German pension system still carries many characteristics of the Bismarck system.
A more modern take on pension structuring is by dividing it into three governmental models: the social-democratic model, the conservative model or the liberal model. The role of the different pensions is differentiated in different countries. In the social-democratic model, the social security system is dominant with both an income dependent and independent part. Here, Sweden can be used to constitute an example. The pension in the conservative model is based foremost on the terms of employment, an example of which can be seen in Germany. The liberal model is characterized by a lower public pension where the most part of the pension is based on contractual and private pensions. Pension in Great Britain exemplifies this.
There are correlations between the different pension systems. Changes in one system often spill over and create changes within another system. These correlations can be very different in nature. Here some varieties are described.
When changes are made to the public pension system they in turn influence the structure and extent of the contractual pension. The introduction of a public pension system usually means that the contractual pension systems cease to exist or at least they are reformed. Changes in the public pension system lead to changes in other systems. Sometimes the reason can be a conscious aspiration, like in Great Britain during the Thatcher era, where changes encouraged people to leave the public supplementary pension system for contractual and private pensions.
Both forms of pension systems can be seen as substitutes where changes in one system lead to counteracting changes in another. What concerns the individual is not in which shape the pension is being collected but the aggregated level of the pension. If the compensation in the public pension system is increased, this can be counteracted by a compensation decrease in the contractual pension systems. These changes do not necessarily need to come from the public pension systems, but can just as easily have their source in the contractual pension systems. Changes in one or several parts of the contractual pension system can lead to changes in the public pension system.
When we discuss links between the different pension systems we generally think that it is the total level which is interesting and therefore that the compensation levels of the different systems change in a counteracting manner. However, sometimes a benefit or regulation is introduced into one system which results in the introduction of a complementary and strengthening change to another pension system. Further on I will demonstrate some examples of a few of these links.
