THE INVERTING PYRAMID - World Bank...THE INVERTING PYRAMID: DEMOGRAPHIC CHALLENGES TO THE PENSION...
Transcript of THE INVERTING PYRAMID - World Bank...THE INVERTING PYRAMID: DEMOGRAPHIC CHALLENGES TO THE PENSION...
THE INVERTING PYRAMID: DEMOGRAPHIC CHALLENGES TO THE PENSION
SYSTEMS IN EUROPE AND CENTRAL ASIA
Anita M. Schwarz
Lead Economist
Human Development Department
Europe and Central Asia Region
World Bank
March 2014
1
IMPORTANT ACHIEVEMENT OF PROVIDING
OLD AGE SECURITY
Over last century, increasing number of workers
insured against risks of old age, disability, and
loss of a breadwinner
Insured workers and their employers pay a
percentage of wage as contribution
When each new group of workers joins,
contribution revenue goes up, but initially since
no one from the new group is eligible for benefits,
no additional expenditures occur
Over time as the workers who have paid become
eligible for benefits, expenditures increase 2
MATURATION OF PENSION SCHEMES
THROUGHOUT EUROPE
Established around 1900s > Industrial workers
Commerce, civil servants,
salaried employees
Since 1930s >
Farmers, domestic workers,
self-employed Since 1950s - >
Baby boomers Since 1970s - >
Increased female LFP rate Since 1960s (earlier in ECA)
Since 1990s in ECA - >
Since 2010s - >
Drop in total and formal LFP rate
Post-1990s babies enter LM
Maturity expected in 1960
Extended to 1990
Extended to 2010
Extended to 2020
Extended to 2030
No Extension,
Added stress 1990-2030
No Extension,
Added stress 2010-2050
3
POLICY CHOICES CHANGED
Pensions Designed to Supplement Other Income
• Provided at 70
• Limited to those who had lost working capacity
• Relatively small amount
Pensions Supply All of a Pensioner’s Income
• Ages lowered
• Benefits increased
• Benefits extended to survivors
Pensions Expected to Keep Up with Wage Growth of Working Age Population
• Wage indexation or more
4
1900 1950 1970
POLICY CHOICES WHEN FLUSH WITH
CONTRIBUTION REVENUES
56
58
60
62
64
66
68
70
72
1970 1975 1980 1985 1990 1995 2000 2005 2010
Male Average Effective
Retirement Age
Austria Belgium
Denmark France
Germany Italy
Netherlands Spain
Sweden United Kingdom
54
56
58
60
62
64
66
68
70
72
74
1970 1975 1980 1985 1990 1995 2000 2005 2010
Female Average Effective
Retirement Age
Austria Belgium
Denmark France
Germany Italy
Netherlands Spain
Sweden United Kingdom5
DURATION OF RETIREMENT INCREASED FROM
INCREASING LIFE EXPECTANCY AND FALLING
EFFECTIVE RETIREMENT AGE
0
5
10
15
20
25
30
Belgium Spain Sweden
Ex
pe
cte
d Y
ea
rs i
n R
eti
re
me
nt
1970
1990
2009
63
57
59
64 63
65
Average Effective Retirement Age Shown on Each Bar
71
67
63
Data Sources: OECD, Eurostat
6
ELDERLY ARE NOT IN GENERAL MORE POOR THAN
YOUNGER COHORTS
7
0%
20%
40%
60%
80%
100%
120%
140%L
ITH
UA
NIA
…
CR
OA
TIA
MO
LD
OV
A
BU
LG
AR
IA
BE
LA
RU
S
AL
BA
NIA
AR
ME
NIA
GE
OR
GIA
HU
NG
AR
Y
SL
OV
AK
RE
PU
BL
IC
PO
LA
ND
RO
MA
NIA
BO
SN
IA-H
ER
ZE
GO
VIN
A…
UK
RA
INE
MO
NT
EN
EG
RO
SE
RB
IA
AZ
ER
BA
IJA
N…
KA
ZA
KH
ST
AN
KO
SO
VO
KY
RG
YZ
RE
PU
BL
IC
TA
JIK
IST
AN
Ra
tio
of
co
nsu
mp
tio
n o
f h
ou
se
ho
lds w
ith
pe
nsio
ne
rs t
o
tho
se
wit
ho
ut
65+
80+
NOW EUROPE IS AGING
8
0%
5%
10%
15%
20%
25%
30%
35%
40%
Lu
xem
bou
rgF
ran
ceB
elg
ium
Cyp
rus
Malt
aS
loven
iaG
reece
Sw
itzerl
an
dS
pa
inIt
aly
Icela
nd
Irela
nd
Un
ited
Kin
gd
om
Norw
ay
Den
mark
Sw
ed
en
Fin
lan
dN
eth
erl
an
ds
Au
str
iaG
erm
an
yP
ort
uga
lA
rmen
iaR
ussi
an
Fed
era
tion
Rep
ubli
c of
Mold
ova
Bela
rus
Lit
hu
an
iaE
sto
nia
Alb
an
iaH
un
gary
Latv
iaG
eorg
iaS
lova
kia
Pola
nd
Czech
Rep
ubli
cC
roati
aR
om
an
iaB
ulg
ari
aM
on
ten
egro
Uk
rain
eS
erb
iaT
FY
R M
ace
don
iaB
osn
ia &
Herz
egovin
aT
aji
kis
tan
Kyrg
yzsta
nT
urk
men
ista
nK
aza
kh
sta
nU
zbek
ista
nA
zerb
aij
an
Tu
rkey
HIGS HIMS LSTC HSTC YC
Percentage of Population over the Age of 65
2010 2050
BUT MORE TROUBLING IS THE PROJECTED
DECLINE IN WORKING AGE POPULATION
9
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
Slo
ven
ia
Italy
Ma
lta
Sw
itzerl
an
d
Gre
ece
Sp
ain
Belg
ium
Fra
nce
Cyp
rus
Lu
xem
bou
rg
Port
uga
l
Germ
an
y
Au
stri
a
Neth
erl
an
ds
Fin
lan
d
Den
ma
rk
Sw
ed
en
Un
ited
Kin
gd
om
Norw
ay
Irela
nd
Icela
nd
Bu
lga
ria
Georg
ia
Rep
ubli
c of
Mold
ova
Bela
rus
Rom
an
ia
La
tvia
Ru
ssia
n F
ed
era
tion
Pola
nd
Lit
hu
an
ia
Cro
ati
a
Slo
vak
ia
Hu
nga
ry
Est
on
ia
Czech
Rep
ub
lic
Alb
an
ia
Arm
en
ia
Bosn
ia a
nd
Herz
egovin
a
Uk
rain
e
TF
YR
Mace
don
ia
Serb
ia
Mon
ten
egro
Azerb
aij
an
Tu
rkey
Ka
za
kh
sta
n
Uzb
ek
ista
n
Tu
rkm
en
ista
n
Kyrg
yzst
an
Ta
jik
ista
n
high income generous
spenders
high income moderate spenders lower spending transition countries high spending
transition
countries
young countries
1970-2010 2010-2050
LEADS TO FISCAL DEFICITS IN PENSION
SYSTEMS FAR GREATER THAN DURING
RECENT FINANCIAL CRISIS
-7%
-6%
-5%
-4%
-3%
-2%
-1%
%
2007 2017 2027 2037 2047 2057 2067
% o
f G
DP
Projected Pension System Deficits in Average CE Country
10
FACED WITH THE DEMOGRAPHIC ONSLAUGHT,
EUROPE HAS UNDERTAKEN LOTS OF
PARAMETRIC PENSION REFORM
11
0%
20%
40%
60%
80%
100%
120%
High Income
Generous
Spenders
High Income
Moderate
Spenders
Lower
Spending
Transition
Countries
High Spending
Transition
Countries
Young
countries
Increase in Retirement Age
Years of Service Reforms
Increase in Contribution Rate
Decrease in Contribution Rate
Indexation Reforms
Extension of Averaging Period
Changes to Benefit rate
ADOPTED A SMORGASBORD OF STRUCTURAL
REFORMS
Point System Notional
Accounts
Funded
Defined
Contribution
Universal
Pension
Germany
France (pvt sector)
Romania
Slovak Republic
Estonia
Bosnia, RS
Croatia
Montenegro
Serbia
Sweden
Italy
Latvia
Poland
Azerbaijan
Kyrgyz Rep
Russian Fed
Turkmenistan
Sweden
Denmark
Poland
Hungary
Slovak Rep
Lithuania
Latvia
Estonia
Bulgaria
Romania
Croatia
FYR Macedonia
Kazakhstan
Kosovo
Kyrgyz Rep
Russian Fed
Ireland
UK
Netherlands
Denmark
Czech Republic
Georgia
Kazakhstan
Kosovo
12
NO SINGLE DOMINANT PARADIGM HAS
EMERGED
Pension systems have two main objectives:
Poverty alleviation among the elderly
Replacing the income retirees used to earn so that
they don’t face a sharp drop in consumption ability
So far, pension systems in the region have more
or less done both – not so in other regions
Country interest in ECA has been toward income
replacement
Strengthening links between contributions and
benefits
Will this be affordable in the future? 13
IMPACT OF REFORMS - RETIREMENT AGES WENT UP,
BUT SO DID LIFE EXPECTANCY – DURATION OF
RETIREMENT DID NOT CHANGE MUCH
14
-4
-3
-2
-1
0
1
2
3
4
5
6S
wit
zerl
an
d
Ita
ly
Gre
ece
Cyp
rus
Fra
nce
Sp
ain
Malt
a
Slo
ven
ia
Belg
ium
Norw
ay
Den
mark
Fin
lan
d
Un
ited
Kin
gd
om
Irela
nd
Port
uga
l
Germ
an
y
Au
str
ia
Sw
ed
en
Neth
erl
an
ds
Icela
nd
Cro
ati
a
Latv
ia
Esto
nia
Hu
ngary
Slo
va
kia
Czech
Rep
ubli
c
Lit
hu
an
ia
Pola
nd
Bu
lgari
a
Rom
an
ia
High Income Generous Spenders High Income Moderate Spenders Lower Spending Transition Countries
ye
ars
change in effective retirement age change in life expectancy at effective retirement age
LIFE EXPECTANCY AT RETIREMENT
REMAINS WELL OVER 15 YEARS
15
10
15
20
25
Belg
ium
…G
reece
Sp
ain
Italy
Fra
nce
Lu
xem
bou
rgM
alt
aIr
ela
nd
…S
wed
en
Den
mark
Neth
erl
an
ds
Port
ugal
Un
ited
Kin
gd
om
Au
stri
aG
erm
an
yF
inla
nd
Norw
ay
Lit
hu
an
ia…
La
tvia
Alb
an
iaR
uss
iaB
ela
rus
Arm
en
iaB
ulg
ari
aH
un
ga
ryR
om
an
iaC
zech
Rep
ub
lic
Slo
vak
iaP
ola
nd
Cro
ati
aS
erb
ia…
Bosn
ia-F
ed
era
tion
Kazak
hst
an
…K
yrg
yz R
ep
ub
lic
Azerb
aij
an
Tu
rkey
ye
ars
male life expectancy at exit age
10
15
20
25
30
Gre
ece
…M
alt
aB
elg
ium
Sp
ain
Italy
Fra
nce
Lu
xem
bou
rgIr
ela
nd
…P
ort
ugal
Sw
ed
en
Neth
erl
an
ds
Den
mark
Norw
ay
Germ
an
yU
nit
ed
Kin
gd
om
Fin
lan
dA
ust
ria
Lit
hu
an
ia…
La
tvia
Bu
lgari
aA
rmen
iaR
om
an
iaH
un
ga
ryC
zech
Rep
ub
lic
Cro
ati
aS
lovak
iaR
uss
iaB
ela
rus
Alb
an
iaP
ola
nd
Serb
ia…
Bosn
ia-F
ed
era
tion
Kazak
hst
an
…K
yrg
yz R
ep
ub
lic
Azerb
aij
an
Tu
rkey
ye
ars
female life expectancy at exit age
PERSISTENCE OF EARLY RETIREMENT
16
0%
10%
20%
30%
40%
50%
60%
70%
80%
Lit
hu
an
ia
Latv
ia
Bu
lgari
a
Pola
nd
Cro
ati
a
Slo
va
kia
Rom
an
ia
Alb
an
ia
Georg
ia
Arm
en
ia
Bela
rus
Ru
ssi
a
Rep
ubli
ka S
rpsk
a
Serb
ia
Bosn
ia F
ed
era
tion
Kyrg
ysta
n
Kaza
kh
sta
n
Azerb
aij
an
Tu
rkey
LSTC HSTC YC
Share of Old Age Beneficiaries Below the Age of
65
male
female
total
NO EFFECTIVE DECLINE IN GENEROSITY
(2001-2008)
17
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Slo
ven
ia
Sw
itzerl
an
d
Ita
ly
Sp
ain
Gre
ece
Belg
ium
Fra
nce
Cyp
rus
Germ
an
y
Au
str
ia
Neth
erl
an
ds
Fin
lan
d
Un
ited
Kin
gd
om
Den
mark
Norw
ay
Sw
ed
en
Icela
nd
Port
uga
l
Irela
nd
Latv
ia
Cro
ati
a
Pola
nd
Bu
lgari
a
Lit
hu
an
ia
Slo
va
kia
Bela
rus
Czech
Rep
ubli
c
Esto
nia
Rom
an
ia
Hu
ngary
Ru
ssi
a
Arm
en
ia
Mold
ova
Mon
ten
egro
Mace
don
ia
Alb
an
ia
Serb
ia
Kaza
kh
sta
n
Tu
rkey
Kyrg
yzsta
n
Azerb
aij
an
Taji
kis
tan
HIGS HIMS LSTC HSTC YC
Gro
wth
in
Pe
nsio
n S
pe
nd
ing
pe
r E
lde
rly
Pe
rso
n R
ela
tiv
e
to G
ro
wth
in
Pe
r C
ap
ita
GD
P
Growth in Pension Spending Per Elderly Person
Compared to Growth of GDP per Capita
IN ALMOST EVERY COUNTRY PENSION
SPENDING IS PROJECTED TO GROW AS SHARE
OF GDP
18
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Ita
ly
Fra
nce
Gre
ece
Sp
ain
Malt
a
Belg
ium
Slo
ven
ia
Cyp
rus
Lu
xem
bou
rg
Den
mark
Port
uga
l
Sw
ed
en
Un
ited
Kin
gd
om
Au
str
ia
Germ
an
y
Fin
lan
d
Neth
erl
an
ds
Irela
nd
Norw
ay
Cro
ati
a
Latv
ia
Arm
en
ia
Pola
nd
Esto
nia
Ru
ssi
a
Alb
an
ia
Bu
lgari
a
Czech
Rep
ubli
c
Hu
ngary
Lit
hu
an
ia
Rom
an
ia
Slo
va
kia
Serb
ia
BH
Fed
era
tion
Bela
rus
Rep
ubli
ka S
rpsk
a
Kaza
kh
sta
n
Azerb
aij
an
Kyrg
yz
Tu
rkey
High Income Generous
Spenders
High Income Moderate
Spenders
Lower Spending Transition
Countries
High
Spending
Transition
Countries
Young
countries
2010
2060
AND COVERAGE OF THE ELDERLY IS
EXPECTED TO FALL – MORE SPENDING
NEEDED TO PREVENT OLD AGE POVERTY
19
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Arm
en
ia
Alb
an
ia
Rom
an
ia
Ru
ssi
a
Hu
ngary
Bu
lgari
a
Bela
rus
Latv
ia
Cro
ati
a
Lit
hu
an
ia
Czech
Rep
ubli
c
Esto
nia
Pola
nd
Slo
va
k R
ep
ubli
c
Georg
ia
Rep
ubli
ka S
rpsk
a
Bosn
ia F
ed
era
tion
Serb
ia
Azerb
aij
an
Kyrg
yz R
ep
ubli
c
Tu
rkey
Kaza
kh
sta
n
Taji
kis
tan
Koso
vo
LSTC HSTC YC
Share of Elderly Receiving Benefits in 2010 and
Projected to Receive Benefits in 2050
2010
2050
WHAT ARE POSSIBLE SOLUTIONS?
Increase labor force
Fertility increases – too little, too late
Increase labor force participation rates in prime ages
Increase coverage – increases fiscal problem in future
Increase productivity – typically reflected in wages,
which affect benefits
Immigration
Longer work life
Use other fiscal resources
Use savings to complement public benefits during
retirement
20
INCREASE LABOR FORCE PARTICIPATION – NOT
MUCH ROOM IN PRIME WORKING AGES
21
0
10
20
30
40
50
60
70
80
90
ECA circa 2009, men
0
10
20
30
40
50
60
70
80
90
ECA circa 2009, women
POTENTIAL FOR “ACTIVE AGING” IS HUGE IN
ECA REGION
22
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Sw
ed
en
Irela
nd
Un
ited
Kin
gd
om
Germ
an
y
Fin
lan
d
Den
mark
Port
uga
l
Neth
erl
an
ds
Au
str
ia
Sp
ain
Gre
ece
Fra
nce
Ita
ly
Belg
ium
Slo
ven
ia
Georg
ia
Esto
nia
Latv
ia
Lit
hu
an
ia
Mold
ova
Bu
lgari
a
Ru
ssi
a
Czech
Rep
ubli
c
Slo
va
kia
Rom
an
ia
Serb
ia
Cro
ati
a
Hu
ngary
Pola
nd
Uk
rain
e
Kaza
kh
sta
n
Kyrg
yzsta
n
Azerb
aij
an
Tu
rkey
HIMS HIGS LSTC HSTC YC
Potential labor force gain among the population age
45-64
60-64
55-59
50-54
45-49
ROOM FOR USING OTHER FISCAL
RESOURCES IS LIMITED
23
0
5
10
15
20
25
30
35
40
45
Slo
ven
ia
Arm
en
ia
Alb
an
ia
Ru
ssi
a
Georg
ia
Lit
hu
an
ia
Rom
an
ia
Esto
nia
Latv
ia
Slo
va
kia
Bu
lgari
a
Mold
ova
Pola
nd
Cro
ati
a
Czech
Rep
ubli
c
Bela
rus
Hu
ngary
Mace
don
ia
Uk
rain
e
Mon
ten
egro
Bosn
ia &
Herz
egovin
a
Serb
ia
Azerb
aij
an
Taji
kis
tan
Koso
vo
Kyrg
iz R
ep
ub
lic
Kaza
hk
stan
Tu
rkey
HIGS LSTC HSTC YC
Pe
rce
nt
of
GD
P
Taxes Already High social security contributions other taxes taxes on goods and services income taxes
Tax Structures,
SAVINGS COULD HELP SUPPLEMENT PUBLIC
BENEFITS, BUT LIMITED SAVING ACTUALLY
TAKING PLACE
24
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
% o
f G
DP
Voluntary and Mandatory Pension Savings in
2012
III Pillar (Voluntary) II Pillar (Mandatory)
25
TAKE A SIMPLER APPROACH TO PENSION
DESIGN AND EXPLAIN IT WELL
What can we afford to spend on pensions as a
percentage of GDP?
What do we spend now?
Do we see room realistically for increasing revenues?
What are our expected future needs to cover old
age and disability support?
How much is spending we have to do and how much
is spending we would like to do, but can painfully
reduce if absolutely necessary?
How do we reconcile the two?
26
WHAT DO WE SPEND NOW?
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Ita
ly
Fra
nce
Gre
ece
Sp
ain
Malt
a
Belg
ium
Slo
ven
ia
Cyp
rus
Lu
xem
bou
rg
Den
mark
Port
uga
l
Sw
ed
en
Un
ited
Kin
gd
om
Au
str
ia
Germ
an
y
Fin
lan
d
Neth
erl
an
ds
Irela
nd
Norw
ay
Cro
ati
a
Latv
ia
Arm
en
ia
Pola
nd
Esto
nia
Ru
ssi
a
Alb
an
ia
Bu
lgari
a
Czech
Rep
ubli
c
Hu
ngary
Lit
hu
an
ia
Rom
an
ia
Slo
va
kia
Serb
ia
BH
Fed
era
tion
Bela
rus
Rep
ubli
ka S
rpsk
a
Kaza
kh
sta
n
Azerb
aij
an
Kyrg
yz
Tu
rkey
High Income Generous
Spenders
High Income Moderate
Spenders
Lower Spending Transition
Countries
High
Spending
Transition
Countries
Young
countries
2010 – average pension spending 9.5% of GDP
27
BUT THIS SPENDING IS NOT NECESSARILY
WELL PRIORITIZED
Pensions provided and withdrawal from the labor force well below the age of 65
Impact both on pension spending and contribution revenues, but also on economic growth
Pension levels unsustainably high in some cases
Survivor benefits sometimes encourage women not to participate in the labor market
Affects contribution revenues and economic growth
Spending does not include spending on noncontributory benefits required to prevent all elderly from poverty
Fewer future elderly expected to be eligible to collect pensions
28
WHAT KIND OF PRIORITIES COULD
SOCIETIES SET?
1. No person over the retirement age (65) should fall below the poverty line (20% of GDP per capita)
2. Disabled individuals – those unable to provide for themselves - should be protected, regardless of age
3. Those who contribute to the pension system should receive a higher pension than the basic poverty alleviating one
4. Spouses and families of those who contributed should receive some additional supplement upon the death of the contributor to help support the family
29
AN EXAMPLE OF PRIORITIZING PENSION SPENDING AND
COSTING IT OUT IF EFFECTIVE RETIREMENT AGE IS 65 WITH
PRIME AGE LABOR FORCE PARTICIPATION UNTIL AGE 64
29
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Fra
nce
Slo
ven
ia
Gre
ece
Belg
ium
Cyp
rus
Ita
ly
Sp
ain
Malt
a
Port
uga
l
Irela
nd
Norw
ay
Un
ited
Kin
gd
om
Den
mark
Sw
ed
en
Fin
lan
d
Icela
nd
Germ
an
y
Neth
erl
an
ds
Au
str
ia
Alb
an
ia
Georg
ia
Ru
ssi
an
Fed
era
tion
Mold
ova
Arm
en
ia
Bela
rus
Lit
hu
an
ia
Bu
lgari
a
Hu
ngary
Esto
nia
Czech
Rep
ubli
c
Latv
ia
Slo
va
kia
Rom
an
ia
Pola
nd
Cro
ati
a
FB
IH
Rep
ubli
ka S
rpsk
a
Serb
ia
Taji
kis
tan
Kaza
kh
sta
n
Azerb
aij
an
Kyrg
yz R
ep
ubli
c
Koso
vo
Tu
rkey
HIGS HIMS LSTC HSTC YC
Pe
nsio
n s
pe
nd
ing
, p
ercen
t G
DP
basic to all old disabled top-up to covered survivor
30
SAME PRIORITIES AS BEFORE BUT WITH RETIREMENT AGE
WHERE LIFE EXPECTANCY EQUALS 15 YEARS AND PRIME AGE
LABOR FORCE PARTICIPATION UNTIL THEN
0%
2%
4%
6%
8%
10%
12%
14%
16%
Fra
nce
Slo
ven
ia
Cyp
rus
Gre
ece
Belg
ium
Sp
ain
Ita
ly
Malt
a
Port
uga
l
Irela
nd
Un
ited
Kin
gd
om
Norw
ay
Icela
nd
Sw
ed
en
Fin
lan
d
Den
mark
Germ
an
y
Neth
erl
an
ds
Au
str
ia
Alb
an
ia
Ru
ssi
an
Fed
era
tion
Slo
va
kia
Georg
ia
Arm
en
ia
Mold
ova
Czech
Rep
.
Esto
nia
Lit
hu
an
ia
Bela
rus
Latv
ia
Hu
ngary
Bu
lgari
a
Rom
an
ia
Pola
nd
Cro
ati
a
FB
IH
Rep
ubli
ka S
rpsk
a
Serb
ia
Taji
kis
tan
Koso
vo
Kaza
kh
sta
n
Azerb
aij
an
Kyrg
yz R
ep
ubli
c
Tu
rkey
HIGS HIMS LSTC HSTC YC
Pe
nsio
n s
pe
nd
ing
, p
ercen
t G
DP
Basic to all old disability Top-up to covered Survivor
31
HOW TO GET FROM HERE TO THERE
How do we equitably divide the change across
generations?
What do these decisions imply for pension system
design?
What do these decisions imply for the financing
of old age security?
Accompanying changes:
Changes in labor markets that encourage full labor
force participation until retirement and discourage
earlier withdrawal from labor force
Encouraging retirement savings to provide more
generous benefits than publicly provided
32
BOTTOM LINE: IT IS POSSIBLE TO PROVIDE OLD AGE SECURITY EVEN WITH CHALLENGING DEMOGRAPHICS!
Will need some major changes in expectations
Future may be more like past
Pensions given when people are too old to work
Pensions guarantee poverty prevention
May provide limited earnings replacement
Savings required for enhanced benefits