Mandating plays a role in the retirement income system of nearly every country in the world. In this essay, mandatory pensions refers to employer-provided occupational pensions in the second tier. Mandated second-tier pensions appear to substitute for a portion, or all, of the earnings-related part of social security.
Both Australia and Switzerland mandate private pension coverage, and the Netherlands has a partial mandating program. While mandating with full compli-ance would raise to 100% the coverage of the population to which the mandate applies, in reality compliance is never complete: low-earning, part-time and part-year workers and the self-employed are typically excluded. Moreover, the actual level of coverage depends on the extent of compliance, and on peoplefs views concerning the fairness of the mandate; the incentives, such as tax preferences; and the enforcement effort of government. It is interesting to consider why a country would choose to mandate private pensions rather than mandate earnings-related pensions through social security, and what the consequences of such a choice are. The reasons may include mistrust in the power of government, or a philosophical bias on the part of the citizenry toward private sector provision of pensions. Those reasons are balanced against the costs and risks of providing pensions through the private sector. There is evidence that poverty rates in these three countries have declined since mandating was introduced.
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