The Effect of Public Subsidies on Old-age Provision and Long-term Care Insurance

Public pension systems in Europe aim either at the goal of avoiding poverty or the goal of maintaining the living standard. The systems geared towards poverty avoidance tend to have low public pensions for people with average and high earned incomes and, at the same time, high indirect subsidies for occupational and private pension provision. The opposite applies to systems based on targeting living standards. Empirical studies show that the promotion of occupational and private old-age provision does not unambiguously increase the overall volume of savings in the economy, but subsidies shift private households' investments towards tied forms of savings with subsequent annuitisation. The bundling of long-term care insurance with private old-age provision can take advantages from pooling risks. This advantage can be exploited by extending existing subsidies of old-age provisions to long-term care insurance.