The open method of coordination on pensions: an economic analysis of its effects on pension reforms

Abstract

This paper analyses the potential effects of the open method of coordination (OMC) on pension reforms in the European Union. The main results are: (1) The OMC on pensions might foster yardstick competition by providing reliable benchmarks and by improving the quality and quantity of information about successful pension policies in other member states. However, remaining difficulties in defining indicators and with data availability have to be overcome to fully develop its potential. (2) Its impact on national pension policy formation and thus on direct policy transfer will remain low. Although it provides additional input in the political decision-making process, it does not fundamentally alter the incentive structure of national political markets. Therefore, the OMC on pensions will not effectively reduce the obstacles to profound national pension reforms, but it may turn out to contribute to the development of a common EU social-policy paradigm.