Have we achieved adequate, safe and sustainable pensions?
Axel Börsch‐Supan Munich Center for the Economics of Aging (MEA) at the Max Planck Institute forSocial Law and Social Policy (MPISOC)
Conference on „The future of pensions in Europe: Taking stock and looking ahead two years after the White Paper”, Brussels, 26 March 2014
2
Not yet
No surprise: history, short‐term political costs vs. long‐term gains, conflicts between aims
Still: much progress has been made
Develop very simple analytical framework, dominated by the force of demographic change
Fill framework with examples: can be done, has been done
Have we achieved adequate, safeand sustainable pensions in the EU?
4
Dependency will roughly double
Thus equal burden for young and old means:~40% higher contributions and ~40% lower benefits
Conflict between adequacy and sustainability
Resolve by separate systems (“pillar 0” vs. other “pillars”)
Political economy issues: ‐ detach pillar 0 from demography‐ index other pillars as much as possible to demography
5
B i r g / F l ö t h m a n n , I B S , U n i v . B i e l e f e l d 1 9 9 9
S c h a u b i l d 1 . 6E n t w i c k l u n g d e r A l t e r s s t r u k t u r d e r B e v ö l k e r u n g i n d e n a l t e n u n d n e u e n B u n d e s l ä n d e r n
1 9 9 7
- 1 .0 0 0 .0 0 0 - 5 0 0 . 0 0 0 0 5 0 0 .0 0 0 1 . 0 0 0 . 0 0 0
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
1 0 0
1 1 0
M ä n n e r ( n e u e L . ) M ä n n e r ( a l t e L . ) F r a u e n ( n e u e L . ) F r a u e n ( a l t e L . )
2 0 2 5
- 1 .0 0 0 .0 0 0 - 5 0 0 .0 0 0 0 5 0 0 .0 0 0 1 . 0 0 0 . 0 0 0
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
1 0 0
1 1 0
M ä n n e r ( n e u e L . ) M ä n n e r ( a l t e L . ) F r a u e n ( n e u e L . ) F r a u e n ( a l t e L . )
2 0 5 0
- 1 . 0 0 0 . 0 0 0 - 5 0 0 . 0 0 0 0 5 0 0 . 0 0 0 1 . 0 0 0 . 0 0 0
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
1 0 0
1 1 0
M ä n n e r ( n e u e L . ) M ä n n e r ( a l t e L . ) F r a u e n ( n e u e L . ) F r a u e n ( a l t e L . )
2 1 0 0
- 1 . 0 0 0 . 0 0 0 - 5 0 0 . 0 0 0 0 5 0 0 . 0 0 0 1 . 0 0 0 . 0 0 0
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
1 0 0
1 1 0
M ä n n e r ( n e u e L . ) M ä n n e r ( a l t e L . ) F r a u e n ( n e u e L . ) F r a u e n ( a l t e L . )
20002025
2050 2100
2.3.
1.
6
US
Fertility +
Fertility ‐
BabyBoom/Bust
7
Need at least three different policy instruments to tackle demography (sustainability) Baby boom/bust: pre‐funding Longevity: retirement age Fertility: quantity/quality (education & health)
In addition: separate fourth policy to tackle adequacy
Where do we stand on these four issues?
8
Gross replacement rate of pensions:
Median earner(OECD pensions at a glance 2013)
40% 67%
Source: OECD Pensions at a Glance 2013
Share of 65+ individualswith income below 50% median income
Perverse redistribution
10
0
5
10
15
20
25
30
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050
Greece
Italy
Spain
France
EU27
Germany
Netherlands
Denmark
Sweden
UnitedKingdom
UnitedStates
700%
650%280%
Pensions as %GDP25
10
02010 2040
and the resultingimplicit debt
Source: EU Commission 2011
190%
11
Explicit and implicit debt[%GDP, as of 2012]
1686886
10810049120
477238826586 108 18
12
13
‐0,03
‐0,025
‐0,02
‐0,015
‐0,01
‐0,005
02010 2015 2020 2025 2030 2035 2040 2045
EU3
Japan
USA
Force of ageing: Annual percentage loss in working age individuals per population
90%
95%
100%
105%
110%
115%
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Mat
eria
l Liv
ing
Stan
dard
3: Labor Mkt& PensionReform
2. LaborMarketReform
1: StatusQuo
Living standard [Consumption per capita]relative to a non‐aging population
Source: Börsch‐Supan and Ludwig 2010
Status quo
If resemble…
© MEA @ MPISOC © MEA @ MPISOC
Labor force participation (Men 60‐64)
Evidenz zum Gesundheitszustand älterer Menschen: Altersgradient
0
5
10
15
EU-2
7
Belg
ien
Tsch
echi
sche
Rep
ublik
Dän
emar
k
Deu
tsch
land
Irlan
d
Grie
chen
land
Span
ien
Fran
krei
ch
Italie
n
Ung
arn
Nie
dern
land
e
Öst
erre
ich
Pole
n
Portu
gal
Finn
land
Schw
eden
Gro
ßbrit
anni
en
2008 2009 2010 2011
Expected healthy life after age 65 (no limitations in daily activities), men
2008 2009 2010 2011
17
Evidenz zum Gesundheitszustand älterer Menschen: Altersgradient
0
10
20
30
40
50
60
70
80
90
60 61 62 63 64 65 66 67 68 69
Selbsteinschätzunggut, sehr gut oderausgezeichnet [inProzent]
Keine Funktions-einschränkung [inProzent]
Greifkraft [in kg]in orangeSchwankungs-breite
Myth: Health age 60‐69 in Europe
Self rated: percentexcellent, verygood and good
Functional: percent with noADL limitation
Objective:Grip strengthkg with stddeviation
11,8
12,5
13,1
14,2
14,9
15,7
18,5
20,5
23,4
26,0
27,5
29,2
40,0
42,5
42,5
43,2
44,7
45,1
46,0
47,5
48,3
49,3
51,0
52,3
49,4
49,0
48,0
47,4
47,0
47,6
48,8
50,0
50,1
51,0
52,1
52,9
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Beschäftigungsquoten in Deutschland in Prozent
15 bis unter 65 Jahre 55 bis unter 60 Jahre 60 bis unter 65 Jahre
Tailwind throughemployment gainsin spite ofdemographicheadwind
Can be done, has been done:
18%
19%
20%
21%
22%
23%
24%
25%
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
2055
2057
2059
Contribution rate by labor force participation (LFP)
Status Quo/2011
Lab2007
Dänemark
LFP pre‐reform (2007)LFP post‐reform (2011)LFP Denmark
Can be done, has been done:
Riester privateOccupationalOther private
Figure 14: Synopsis of pension reform elements in Europe, 1980-2010
Retirement age Link of benefits to contributions
Indexation
Austria women 65 +
Germany all 67 (universal point sys) sustainability
France all 62 Basis of point system
Italy NDC NDC
Spain
Greece Partially
Denmark all 67 rev
Sweden DI NDC NDC
Norway point life expectancy
Finland UI tunnel scale factors
Netherlands EEA, DI
UK all 68 price wage
US all 67
Can be done, has been done:
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Have we achieved adequate, safe and sustainable pensions?
Have we achieved adequate, safeand sustainable economic conditionsfor the young?