Have we achieved adequate,safe and sustainable pensions? AxelBörsch‐SupanMunich Centerfor the Economicsof Aging (MEA)atthe MaxPlanckInstitutefor Social Lawand Social Policy (MPISOC) Conferenceon„ThefutureofpensionsinEurope:TakingstockandlookingaheadtwoyearsaftertheWhitePaper”,Brussels,26March2014
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Have we achieved adequate, safe and sustainable pensions? · Have we achieved adequate, safe and sustainable pensions? Axel Börsch‐Supan MunichCenter fortheEconomics ofAging(MEA)
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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
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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
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?
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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