BAKU, Azerbaijan, June 24. Multi-pillar pension systems are generally more effective in achieving diverse pension policy objectives and in distributing risks, according to PensionsEurope, Trend's correspondent reports from the event.
Speaking at the 11th Azerbaijan International Insurance Forum in Baku, Matti Leppäla, Secretary General and CEO of PensionsEurope, said that no single pension pillar can simultaneously meet all policy goals, making the combination of different mechanisms essential.
“State pensions primarily serve to prevent poverty and ensure social solidarity. These elements are also clearly visible in the Azerbaijani pension system. However, state pensions alone cannot cover all socio-economic objectives. The OECD also emphasizes that separate tools and mechanisms are required for each policy goal,” he said.
Leppäla noted that occupational pensions linked to employment, but outside the social security system, play a key role in income replacement and long-term financing.
He added that individual pension schemes provide more flexible saving opportunities, particularly as many workers in Europe remain outside occupational pension coverage.
“The strongest pension systems diversify risks in the same way investors diversify portfolios,” he said.
Leppäla highlighted that most advanced pension systems in Europe are built on a three-pillar structure combining public pensions, occupational schemes, and voluntary private savings.
He cited Switzerland and the Netherlands as leading examples. Switzerland has a strong and stable occupational pension system, while the Netherlands has the most developed second-pillar system in Europe, covering more than 90% of the workforce and managing over €1.5 trillion in pension assets, making it the largest funded pension market in Europe.
He noted that while Switzerland’s system is mandatory, the Dutch model is based on collective agreements between employers and employees. However, he cautioned that such models cannot be directly replicated elsewhere due to differences in labor markets, institutional structures, and the role of social partners.
Leppäla also said that Sweden’s pension system is based on a Notional Defined Contribution (NDC) model, which shares similarities in some respects with Azerbaijan’s system. He added that Sweden also has a strong occupational pension pillar built through collective agreements over more than a century, alongside widespread voluntary savings.
Finland’s system, he said, differs in structure as it combines pay-as-you-go and partially funded elements within its earnings-related pension system. Around 25–30% of pension liabilities are funded, with assets managed by private pension insurance companies.
Leppäla noted that Finland’s accumulated pension assets are roughly equivalent to the country’s GDP. He also said the system is fully universal, with no restrictions on pension coverage or pensionable income, which reduces the need for a large second pillar.
“Everyone is fully covered under the same system, which is why the second pillar is less developed in Finland,” he added.
