For the purpose of this study our categorisation of pension systems into pillars follows
closely that of the OECD, although we include only completely voluntary pension schemes
in the third pillar, i.e. where the decision to contribute is unrelated to the workplace. We
want to emphasise that any categorisation is arbitrary; it is done to obtain a better
understanding of the differences in the structure and the financing of the pension systems
in the EU, but it does not do justice to the idiosyncrasies of the different national schemes.
Following this categorisation, the first pillar serves as a means for avoiding old-age
poverty, the second pillar focuses on an adequate pension in terms of the replacement
rate, while the third pillar is meant to provide an opportunity for individuals to save
towards increasing their retirement income. The first pillar is state-managed PAYG with an
element of redistribution, since there is no close link between contribution and benefits.
The second pillar contains the earnings-related pension provision in traditional PAYG
schemes as well as funded pension defined contribution (DC) and defined benefit (DB)schemes available to a smaller or larger group in a number of Member States.