The fiscal burden of pension benefits is rising in countries that are part of the Organisation for Economic Co-Operation and Development. Major changes in the demographic landscape of these economies are driving substantial pension policy reform and growth in pension assets. These trends are significant for businesses not only because of growth in the asset management sector and the escalating fiscal burden but also because particular characteristics of national pensions have major implications for the private sector.
Reviewing the rising pension costs in countries that are part of the Organisation for Economic Co-Operation and Development (OECD), the authors examine the degree of pension progressivity and the impact of national characteristics on such progressivity. They suggest that national institutions, gender, culture, social trust, and inequality affect international variations in the progressivity of pensions. Leveraging independent variables from previous literature, the authors develop a set of hypotheses. The variables represent a spectrum of cultural aspects (individualism, masculinity, lack of tolerance for ambiguity, relative tolerance for societal hierarchy, and long-term orientation) that they believe drive pension progressivity.
How Is This Research Useful to Practitioners?
The authors differentiate their research by including outcome measures alongside attitude measures in determining the degree to which pension progressivity, which is how well pensions reflect lifetime earnings, is driven by national culture attributes (aspects of culture) and outcomes (governance, employment rights, and gender development). The research insights are relevant for the design and costs of public and private pensions at home and abroad. They cite particularly the relevance to a multinational corporation seeking to develop a pension and benefits program for foreign operations.
Following their analyses, the authors find that pension progressivity is negatively associated with male dominance in the workplace, lack of tolerance for ambiguity, individualism, long-term orientation, social trust, employment rights, economic inequality, national wealth, and the average relative pension level. It is positively associated with more involvement of women in the culture, both economic and societal, the stability of the political climate, and the accountability of the government.
How Did the Authors Conduct This Research?
The authors establish support for seven hypotheses by conducting tobit panel regression analyses with a dependent variable from the OECD’s Pensions at a Glance (a publication that provides data on both public and private pension plans in OECD countries) index of pension progressivity. Their data cover 2005–2008. The independent variables for the regression are based on five cultural dimensions, which were published in previous literature: individualism, masculinity, uncertainty avoidance, power distance, and long-term orientation. The authors also conduct robustness tests to unravel the impact of independent variables and to further assess some specific independent variables.
The impact of national (public) pensions is broad and has influence on financial development and inequality. As such, any practitioner in the financial intermediation industry should be cognizant of the national characteristics that affect national pensions. In addition, pension managers, and particularly those with an international mandate, might benefit from an understanding of how local norms and cultures play a part in the escalation of pension liabilities and the expected or required performance of portfolios they are entrusted to manage.