the rights from the beginning. So that was one sort of thing I had in mind. I did spend a few minutes looking at the ECB rules, and I decided- In all pension plans, you mean? The ECB rules about cross-country and mobile workers. And I decided, first of all, it would be a couple of years

before I would be ready to do anything. And secondly, I couldn't think of anything to say. But I will say, given where we are, not at the ECB, but in Germany, the Riester pensions couldn't have a worse design. And I mean, they're just terrible. I've written this in the volume for Hans Werner Zing.

I'm not up to date on it. I wrote that a couple of years ago. I don't think it's gotten much better, but I did learn from somebody here. It's gotten a little better. Very often, I'm waiting for questions. But many regimes, as I know them, I'm not a specialist, but you have sort of hybrid system.

We have a deal which is pay as you go. We have one part which is sort of defined benefit and contribution and purely subsidized and then purely private systems. And so it's very difficult to put the things together. So there's plenty of rules. I had a question about the backstops, for example, to regimes because sometimes you're in regimes

which are not sponsored by the public, where your provider of a pension is getting broke. You have seen it in UK. And so are you in favor of, in this regime, to have a sort of backstop regime? Or you would prefer, the Swedish model is different here, I think, because it's sponsored by government,

if I understand, no? If something goes wrong, what happens? Well, the two parts I talked about are government-designed, government-run systems, and it's the government's problem to deal with it. But they also have a significant occupational pension system.

Obviously for civil servants, which worldwide tends to be more generous than the system for others, but also for others. I forget the numbers. Maybe 90% of the working people have some kind of additional pension through their employers.

So those have this kind of backstop issue. And the huge swing, most visibly in the Netherlands with extended ongoing debate over how hard it is to do anything else, the swing from defined benefit to defined contribution is a way of at least settling very clearly

where the risk goes. You may not be happy that it's there, but you're no longer dealing with opacity. Because they discovered in the Netherlands, when they got hit twice with financial crises, that there was a lot of fine print that the workers didn't know about. So I think that's...

So that's the case in, I mean, recently, as you, what in market one was calling the big risk shifting game, where you were shifting, you know, sort of risk to the policyholders, and that's from defined benefit to defined contribution. And many people were not very aware of that. Let me go back on Sweden.

They have minimized almost to zero the risk that's outside the system unless they make changes. So what they have done on the annuity thing is that the standard one is with profit. So the only risk they have is they can't even pay the nominal amounts.

All the rest of the risk has been shifted to the others. And the other one is a repeated calculation of what can be afforded. And in the notional defined contribution system, they do a calculation of assets and liabilities, including the future contributions as assets.

And when that gets out of line, they change both the accumulation rate for younger workers and the benefit rate for the already retired. So the government, their design was to have the government budget held harmless by the various risks that would come.

Now, the first time this got invoked, the public was so incensed that they had to change the rules. But they changed the rules without actually putting in more money. But there is a sensitivity there. I have one question, one question. So thanks, first of all, for the lecture.

I appreciate it very much. So you were mentioning Sweden repeatedly. And at the beginning when they designed the reform, I think it was 1993, 1994 probably,

you mentioned it together with a similar reform that was done in Italy based on essentially on the same pension design, a good pension design. Then you stopped talking about Italy and you went into many details on the Swedish system.

I think it's worth, first of all, why did you stop talking about Italy? I think- You know the answer to that, right? Yeah, I know the answer. That's why I'm asking the question. The difference is essentially in the implementation of the reform.

So the idea, the Italians are good at designing things, much less so at implementing them. The implementation was a disaster. And I think one big difference, which is very much related to some of the features that you are in the background

when you talk about the quality of a good pension system is the lack of sophistication of the individuals. And so when you move from one system to another, you need to train the individuals. And so this was done beautifully in Sweden

with this orange envelope. And it went on for many, many years until people felt completely confident with the new system. So it became sort of ingrained in their brain that automatically they were mapping themselves

into the system. That was where the Italian system failed. That is one dimension clearly. So that brings me to the political economy of the issue. I mean, one explanation for why the Italians didn't do it is because politicians didn't want to disappoint voters, just revealing what their pension

would have been 30 years from now. And I've been writing articles together with many other colleagues until three years ago. And they started sending the first orange envelopes exactly three years ago, so 20 years later.

So I think besides the good pension design, I think there is an issue of a good pension management of the reform that I think is worth mentioning and linking it to the political economy. If you think back to my slide on the difficulty of good design,

one of them is how the government will behave both at initiation and implementation and then over time in the political process. And that, to my mind, is a limit on what you do and a reason why there's no such thing

as the single best pension system for everywhere. It's got to adjust, obviously, for different concerns about welfare, different degrees of formality, income distribution, but also how the government will behave. Just to take an example, the Swedish default

is run like a sovereign wealth fund. They're investing all over the world, bringing in a return that has been, so far, very high, the alternative model, if you wouldn't let your government do that,

is what the federal government, US federal government, set up for civil servants. So this is not a country-wide system, but there are over three million people in the pension system. And what they've done, and it's a defined contribution system, is they've got, I guess it's now five basic index funds,

stocks, bonds, foreign stocks, federal government bonds, which isn't handled, and they take competitive bidding for the right to handle the index because letting the government make decisions

on the allocation of capital is un-American. So people have five funds, they can choose among them. They could not choose and end up in the default, which is a life cycle pattern. And it'd be interesting to see, and that's why I was asking the question earlier,

how well do sovereign wealth funds do relative to the mutual fund market? But for the US, you wouldn't dream of proposing that the US have a sovereign wealth fund that invested abroad. I think we have a president who would not like to see an investment going abroad.

And I think the public would also not trust the government to be backing the right investments. So yes, I share your view, and that's exactly why I don't talk about it. It's too hard to stay up to date on it. Things don't change much in Sweden anymore. Let's pick up a few questions. In the back, yeah.

Hi, quite enjoyed the talk. So in the EU, the free movement of people is a big deal, but moving across constituencies also means moving across pension funds, and that's a big impediment. Is there a quick fix, and is there a role for the European Union?

There isn't a quick fix. It looks easy for defined contribution, for accumulation. And then what you would wanna do is track so that people only had one even though they moved between countries. But the trouble is that's only part of the story. If you get to differences in taxation

across countries which exist, do you wanna let people manipulate how that works out? If you're doing annuities, do you want people to choose to be part of a short-lived population of elderly because they'll get a better annuity?

I think it's an inherently extremely messy problem. It's a little bit like what we've been seeing with fiscal discussions generally, as long as you're having separate systems. The rules, as far as I went,

were if it's your national system, you can do whatever you want, and we're not gonna try to mess with it, but that has some problems beyond recognition of the mobile workers. The systems here, unlike the US, are linear, so it's not totally crazy if you've got several DB systems, you get a piece here, you get a piece there,

although, again, you could do some gaming, perhaps, if you can move things around with the wealth moving with them. The DC is easier. You can envision putting that together, but then the question is, what do you wanna do about firms? Are you requiring it? Are you not requiring it?

Does it remain voluntary, but they're all dealing with the same funds? I mean, one of the complication is, on an age basis, people want different funds. That's one of the problems they're dealing with in the Netherlands, trying to have one fund

but have it function like defined contribution. They call it collective defined contribution, or defined ambition. It's what they will pay if the money's there. It's a mess. It really is a mess. Philip? Thank you. I had two questions,

but I'm not sure whether you answered already the first, but let me try again. So having a great theorist in front of me and thinking about the pension design, so I thought that the theorist could give a shot on what's the optimal pension system given some fairly courageous assumptions

like standard assumptions in terms, and I'm thinking mainly about the three pillars, the mix of them, or I say the top three to five criteria that make you weigh one pillar more than the other. And I'm not thinking about transition problems, of course. These are huge in pension. These are mainly the most important obstacle in many, many circumstances,

but say, quote unquote, steady state. So that was my first question. So I don't know if you said already, well, it's not so easy to say and so on, but maybe the theoretical mind can give some conditions in some sense what an optimal mix would be from a fairly theoretical perspective. I would find this interesting.

The other question is much more practical. So we have in Europe a program that's called the Capital Markets Union, and so there are a number of reasons for that, but one being that we learned also across the crisis, but maybe not only across the crisis that we were too much relying on bank and credit, and we needed to diversify, in particular in the equity side,

in order to have a better risk sharing across the continent, simply said. So the question I would have is, and of course, in my view, one aspect that's in the way is that the accumulating pension systems are still relatively small, and therefore the demand for capital market products

is relatively limited. For example, in this country we're sitting here, our pension system has an equity share of 5%, and the Netherlands has a share, I don't remember precisely, maybe 35% of total pension investments. So my question would be, on the one hand, how important you think is the U.S. pension system or the mixture of pension systems

for the very important capital markets in the U.S.? So is that a major, like one of the top three factors, why they have that capital market system that they have? So a continent that does not have such a system would never develop those capital markets, and would you have a view whether a pension system should be a means or not

to move in the direction of capital? Okay, first let me repeat that I won't answer the first question. This is part of, if you will, the marketing of the book. The issue in the book is to focus on

the things we can recognize that can be improved in a general widespread way, and laying out the principles for how to think about it. And the idea, and this is, you won't be surprised, not the first time I've been asked this question,

the idea of providing that would run against the whole theme and focus of the book. The issue of capital markets is a very interesting one.

The U.S., of course, has, while Social Security has had several trillions, I'm not sure what the exact number is now, it is by law completely in government bonds. So the pension investment in equities is all in the private sector or the civil service sector.

It's not the government sector. The, in Chile, one of the arguments that was made in 81 for development was this would be a big boost for the Chilean stock market. It didn't do a whole lot.

It did a lot for values, because there's a lot of demand, but it didn't do a whole lot for liquidity, because pension funds are very heavily buy and hold. So to what extent is the U.S. stock market helped by that

rather than the combination of a long history of serious attempts at regulation, combined with a sophisticated set of people engaged in it? I don't think that had much to do with the pension side.

I'm not aware of anyone trying to answer that question. I shot to Peter this. No, I think there was a last question, or not. I think there was, no? If not, yes. So we close, we thank you, Peter, very much.

I have plenty of questions, one of the questions, but it will not give you the answer, is the, what do we call it? Liquifying pension rights, the securitization market for pension rights that you have in some place. So I have rights, I can cash it in, spend it now, and then you are not in favor, I would say.

Are you in favor? Somewhat, so it's with limits, because there are the multiple uses of accumulated wealth, and the question is how do you shape the choices? Yes, because it was on the non-tradability of human capital, then I thought, well, you can't cash in

rights on the future that you have now, and I mean. Oh, you can't cash them in earlier, it defeats the mandate. Yeah, exactly, yeah, and so that's a big thing. Okay, thanks. Well, thanks for Peter and Peter for this interesting session. And so we've come to the end of this event, and now some of you have planes to catch,

so keep it very brief. I wanted to thank the research.