Theory of Institutional Inversion of Mandatory Accumulative Pension Systems

This paper presents the theory of institutional inversion of mandatory funded pension systems (MFPSs). This theory establishes a causal relationship between regulatory decisions that infringe upon the long-term pension interests of contributors, the adaptive behavioral response of citizens, and the institutional inversion of a mandatory funded pension system. It is shown that the government's use of participants' personal funded capital for purposes perceived by contributors as inconsistent with the accumulative nature of their pension savings triggers a chain of behavioral shifts and reduces the level of institutional trust in this institution. This process naturally entails the institutional inversion of the MFPS, in which the actual function of the system changes, even while its formal structure is preserved. The mechanism of institutional inversion is described as a sequential and stage-by-stage process. At the initial stage, a conflict of interests between the government and contributors shifts the MFPS into the zone of critical state of the system (ZCSS). At this stage, the accumulative logic is still preserved, but the behavior of citizens changes: trust declines, the search for strategies to evade contributions intensifies, and the contributions themselves are perceived as a forced withdrawal. Further development of this process leads to reaching the point of obligation devaluation (POD) – a critical phase at which the interpretation of contributions as the own capital is virtually lost. The stable behavioral shift of contributors arising at this stage makes the transformation of the institution difficult to reverse. For an explicit and dynamic observation of these processes and for determining the boundaries of the system's phase transition, the author has developed a qualitative "Scale for Determining the Institutional Inversion of an MFPS," which represents a logical continuum of states. The empirical verification of the proposed theory has been carried out based on a comparative analysis of 12 jurisdictions (including countries of Eastern and Northern Europe, the Middle East, Latin America, Oceania, Central Asia, and West Africa). Data from the Gallup World Poll (Confidence in Financial Institutions), the Edelman Trust Barometer: Asset Management, and the World Values Survey (WVS): Social Security System were used as indicators. The research results show a stable repeatability of the behaviorally driven development path of institutional inversion and confirm the key role of the level of public trust in the dynamics of the system's transition at the ZCSS stage and the achievement of the POD. Based on the verified dynamics, the proposed theory allows for a clear and reasoned forecast of the logical consequences of the further development of this institution in a specific country applying an MFPS.The manuscript is provided in English and includes an additional full Russian-language version of the text within the same document.