Bearing the burden

Having watched the pension savings of U.S. workers at companies like Texas-based Enron Corp. vanish, European corporate and government employees are understandably wary about acceding to similarly privatized regimes at home. Why forgo a generous guaranteed stipend in return for one with multiple investment options -- some of which can clearly lead to disaster?

Enron and its ilk notwithstanding, most European countries are still pushing toward some variation of the U.S. pension system. Traditional retirement plans have too often ended up as wards of the state -- dependent on government bailouts or increased contributions from younger taxpayers or employees. Approaches vary, but almost every European country has taken at least some steps on the path of pension reform.

This month we take a look at two European pension programs at different stages of development.

Greece, which last year spent 12.6 percent of its GDP on its pension program -- the highest proportion in the European Union -- adopted its first reform plan this summer. As Contributing Editor Jonathan Kandell notes in "Greek Myths" (page 19), evasion of the existing system was so rampant that Greece now has the biggest unfunded pension liability in the EU. Workers were able to retire -- often in their 50s -- at a compensation rate equal to 80 percent of their last paycheck.

The question, says Kandell, is whether Prime Minister Costas Simitis and his Finance Ministry have gone far enough. Although the legislative package will cut the retirement payout to 70 percent of an employee's average wage during the last five years of his working life and limit the most egregious abuses, it will still offer one of the most generous social security programs available anywhere. Greece, critics say, will need more reform if it is to avert a possible pension funding crisis in the next decade.

In the Netherlands, Europe's largest pension fund, ABP, isn't trying to instill a sense of responsibility in pensioners -- it's trying to make itself more accountable. Highly successful since its privatization in 1996, ABP has chosen to run an unusually big portion of its E150 billion fund in-house. In "Dutch Treatise" (page 30), Senior Editor Andrew Capon examines whether it's a good idea for a big public fund to eschew the use of private managers and their specialized investment expertise. Pensioners from Amsterdam to Athens -- and Houston -- will be watching ABP.