Challenging Pension Reforms: An overview of key issues David Natali - - PowerPoint PPT Presentation

Challenging Pension Reforms: An overview of key issues

David Natali natali@ose.be

Observatoire social européen University of Bologna-Forlì

Challenges Pension Reforms

(Critical reading of the Green Paper 2010)

• 1. Key tensions and challenges
• 2. Taking stock of 20 years of reforms
• 3. Potential solutions
• 4. Conclusion

• 1. Key Tensions and Challenges

a) Ageing, old-age dependency ratio

Commission, 2010

• 1. Key Tensions and Challenges

a) Ageing

Ervik, 2009

• 1. Key Tensions and Challenges

a) Ageing, technological progress

Ervik, 2009

• 1. Key Tensions and Challenges

a) Ageing, employment progress (eco.

dependency ratio)

UN 2000

• 1. Key Tensions and Challenges

b) Crisis and Private pension funds

Pension funds’ nominal investment rate return in selected OECD countries (OECD 2009)

• 1. Key Tensions and Challenges

b) PAYGO 1st pillar, automatic stabiliser

Projected social spending bet. 2007 and 2010 (EPC, 2009)

• 1. Key Tensions and Challenges

b) PAYGO 1st pillar, employment and growth

(EPC, 2009)

• the fall of employment rates: 8 million jobs lost

in 2009/10, after a growth of 9½ million in 2006/08

• potential growth rate in the euro-zone from

1.3%-1.6% (before the crisis) to 0.7%-0.8% (after the crisis)

• 1. Key Tensions and Challenges

d) Labour markets’ change

• ‘Pension gap’ for a-typical workers and

under-pensioned (fixed-term and part-time contracts, interrupted careers)

• women, young, immigrants
• more fragmented careers
• insufficient contribution (low wages)

The Pension Gap,

(pension income/average earnings for typical/a- typical workers and women, UK 2003)

32 23 29 10 4 4 10 20 30 40 50 SER Male Non‐SER Women Private Pension State Pension

Source, PPI 2009

The Pension Gap,

(pension income/average earnings for standard/non-standard careers, UK 2003)

Source, PPI 2009

41 38 39 27 30 31 5 10 15 20 25 30 35 40 45 2003 2028 2048 Standard carrers Non‐standard careers

SER, 44 years (in full-time employment), at median earnings and retires at 65.

• 1. Summing up…

Green paper More critical reading

a.Ageing and old age dependency b.Eco-financial crisis c.Reforms’ impact a.Ageing and economic dependency b.Eco-financial crisis and single schemes c.Reforms’ impact d.Mismatch bet. Labour markets and pension policy

• 2. Taking stock of 20 years of

reforms, for the Green Paper

• Increased risks of adequacy gap
• Increased risks for pension funds (need

for more efficient regulation)

• Need to review the pension promises

• 2. Taking stock of 20 years of reforms,

recasting pensions is not impossible

Natali, 2010

Main reforms France

Pension Reform 1993 Pension Reform 1995 Pension Reform 1997 Pension Reform 2001 Pension Reform 2003 Pension Reform (public sect or) 2008 Pension Reform 2010

Italy

Pension Reform 1992 Pension Reform 1993 (supplement ary pensions) Pension Reform 1995 Pension Reform 1997 Pension Reform 2004 Welfare Prot ocol 2007 Pension Reform (public sect or) 2009

Poland

Pension Reform 1991 Pension Reform 1997 Pension Reform 1998 Pension Reform 2002 Pension Reform 2004 Pension Reform 2008

UK

Pensions Act 1995 Welfare Reform and Pensions Act 1999 Child S upport , Pensions and S

• cial S

ecurit y Act 2000 S t at e Pension Credit Act 2002 Pensions Act 2004 Pensions Act 2007 Pensions Act 2008

• 2. Taking stock of 20 years of

reforms, effective cutbacks

Gross replacement rates 2007/60 (EPC, 2009)

• 2. What distributional effects?

Trends of net replacement rates through reforms (Zaidi, 2010)

• 2. What distributional effects?

Trends of net replacement rates through reforms (Zaidi, 2010)

• 2. What distributional effects?

Trends of net replacement rates through reforms (Zaidi, 2010)

• 2. Taking stock of 20 years of reforms,

public/private management

Privatization discourse

• Insulation from political interference
• Better quality of services
• Greater operating efficiency
• Freedom of choice
• Excessive costs (marketing)
• Need for effective regulation

• 2. Taking stock of 20 years of reforms,

public/private management

Swedish comparison of public and private pension funds (Premium Pensions), Cronkvist and Thaler 2004

• 2. Taking stock of 20 years of

reforms, a more in-depth focus

Green paper More critical reading

• Increased risks of adequacy gaps
• Increased risks for pension funds

(need for more efficient regulation)

• Need

to review the pension promises

• Recasting pensions is difficult but

not impossible

• Reforms have been quite effective

(future benefits much lower)

• Reforms can be implemented in

many different ways (with varied distributional effects)

• The role of private pension funds

must be assessed (need for efficient regulation/governance)

• 3. Potential solutions

Green Paper More critical reading

• 1. Ageing

I. Higher retirement age II. Higher employment rates

• 2. Eco-financial crisis

I. More effective regulation II. More effective governance

• 3. Adequacy gaps

I. Higher basic pensions II. Higher riterement age

• 1. Ageing
• I. Higher Productivity (R&D, welfare)
• II. Tax policy
• III. Importing labour/Exporting capital
• 2. Eco-financial crisis
• I. better governance/regulation of

supplementary private funds

• II. Need of economic -employment

growth

• 3. Adequacy gaps
• I. focus on distributional effects
• II. Flexible retirement age

• 4. Conclusion
• 1. Key role of indicators and discourses

I. Dependency ratio, Public/private mix

• 2. Need for an open approach

I. Multi-policy perspective, evidence-based approach

• 3. Issue of distribution

I. Across occupational, gender, age groups