Pension Pillar

A “pension pillar” is an element of the pension framework described by the World Bank and adopted by many countries, mostly in Europe. There are actually five pension pillars, and each pillar represents a different type of pension format. According to the World Bank, the point of this pension pillar framework is to help policymakers and financial institutions make sure they’re addressing issues related to retirement, poverty, and old age in their societies.

So what are these pillars and what do they mean? Here’s a quick and dirty breakdown:

Zero pillar—This pillar requires no pay-in and provides pensioners with the minimum level of financial and social service support to keep them alive.

First pillar—People contribute, and then, when they retire, they receive a pension that is equal to part of their prior working income (there are some who say first-pillar pension plans should be mandatory for all working people).

Second pillar—Individual savings accounts that exist to help with retirement expenses.

Third pillar—Voluntary pay-in pension plans that will provide more financial stability in our golden years than first-pillar plans.

Fourth pillar—Relying on our network of friends and loved ones to carry the costs of whatever we need, but can’t afford in our old age.

The five-pillar framework isn’t a recipe. Countries don’t receive exact instructions on how to create their own successful national retirement plan soufflé. But what it does do (at least, the World Bank is hoping this is what it does) is gently nudge the folks in power toward thinking more about the long-term needs of a society that is living longer and longer. If we as lawmakers and retirement planners take a more holistic view of what our country offers for retirees—in other words, if we evaluate our nation’s retirement resources in terms of each of the five pillars—then it might help us come up with better and more useful options and plans for our own citizens.