Lífeyriskerfin á Norðurlöndunum og snemmtekinn lífeyrir Tryggvi Þór Herbertsson...
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- Slide 1
- Lfeyriskerfin Norurlndunum og snemmtekinn lfeyrir Tryggvi r
Herbertsson Hagfristofnun Mlstofa hj Selabanka slands 4. febrar,
2002
- Slide 2
- Introduction On the whole, labor force participation of older
workers is declining in the industrialized countries due to
changing age structures. In response to high unemployment, many
countries expanded early retirement schemes in the 1980s. In the
Nordic countries, substantial decreases in labor market
participation have in particular occurred in Finland and, more
recently, in Norway. Despite the common trend toward earlier
retirement, however, labor market participation rates differ
significantly across countries. This divergence indicates that
participation depends on a wide variety of factors. Older workers
in Iceland have among the highest participation rates in the world.
Participation rates are also relatively high in Norway, despite the
recent decline. However, Denmark and Finland have experienced low
and falling participation rates, although there is some evidence
that these rates may now be leveling out.
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- Introduction This combination of earlier retirement and longer
life expectancy results in a much longer span of inactivity.
Regardless of its causes, the withdrawal of older workers from the
labor force leads to an increase in unused production capacity, a
reduced tax base, and a heavier load on pension and fiscal systems.
If the trend toward earlier retirement were to continue far into
the future, it would pose even larger fiscal threats to pension
systems, especially those that do not include a penalty for early
retirement. The trend toward earlier retirement and the related
issue of disability raise substantial policy challenges. General
outline of presentation: Demographics in the Nordic countries
Pension arrangements Early retirement The costs
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- Key Figures
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- The Demographic Time Bomb?
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- Demographics
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- Proportion of population aged 65 and over Key features Low
mortality High fertility Reasonably low migration
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- Demographics
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- Dependency ratio tends to plateau Costs are permanently, not
temporarily, higher Old-age dependency ratio (65+ over 20- 64) in
Sweden 1860-2100
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- The Nordic Welfare State
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- The Nordic Welfare Model Pensions have a long history in the
Nordic countries. The generic Nordic pension system combines a
public, means-tested minimum benefit; a public earnings-related
component; and occupational-based private pension coverage. In
1998, pension spending amounted to: 8.8 per cent of GDP in Denmark,
5.7 per cent in Finland, 3.3 per cent in Iceland, 7.8 per cent in
Norway, 10.7 per cent in Sweden. Demographic trends will increase
pension costs significantly over time. Although the results vary
somewhat from country to country, the trend is unambiguous: the
elderly proportion in the population will exceed 15 per cent by
2030 in all the Nordic countries.
- Slide 12
- Denmark Public old age pensions combine flat-rate pensions with
a small earnings related pension, FP-pensions (pay-as-you-go
financed) Flat-rate funded labour market supplementary plan
(ATP-pensions) New funded supplementary plan (SP-pensions), paying
a flat-rate 10- year annuity from the age of 67 Occupational DC
pensions Private pensions schemes with insurance companies and
banks
- Slide 13
- Denmark Percentage Contributing to a Private Pension Scheme in
Denmark in 1998 Private (occupational and personal schemes)
coverage high in Denmark
- Slide 14
- Finland Flat rate/very small earnings related Finnish National
Pension (KELA) Mandatory TEL/related DB plans (partially funded)
Third pillar insurance funds Male TEL Contributions 1999 in
Finland
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- Iceland
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- Norway Flat rate + progressive earnings scheme DB occupational
pensions Top up accounts
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- Sweden Old PAYG system PPM Occupational schemes Insurance
plans
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- Sweden (Buffer funds)
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- Minimum Pensions Table: Minimum pension in the Nordic pension
systems Denmark Finland Iceland Norway Sweden Official retirement
age 67 65 67 67 65 Minimum social security pension before tax for a
single individual with no alternative income (basic pension and
supplements). 12,855 5,071 - 5,298 11,844 10,362 9,368 Is minimum
state security pension income tested? Not the basic amount, but the
low- income supplement Yes Yes Not the basic amount, but the low-
income supplement Not the basic amount, but the low- income
supplement As of 4th of April 2000
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- The Costs of Early Retirement
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- Labor Force Participation In 17 OECD countries, for which data
are available, the proportion of the 55-64 age cohort of employed
males fell by an average of more than 10 percentage points between
1980 and 1996. For the Nordic countries the inactivity of those 55
years and older has increased substantially over the last four
decades. Trends in the inactivity of males 55+ in the Nordic
countries 1965-98 (weighted average)
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- Early Retirement Labour force participation rates among 55-64
years old males in the Nordic countries, 1977-96
- Slide 23
- Costs of Early Retirement Herbertsson and Orszag (2001)
developed a framework to assess the economic costs of early
retirement in the OECD. There are substantial differences among the
countries in costs due to early retirement. In particular, Iceland
has the lowest costs in the OECD. Costs of early retirement of
55-64 year-olds as a share of potential GDP in the Nordic countries
and the OECD
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- Why Early Retirement? Labor supply explanations: Incentives
(pension wealth, accrual rate, earnings tests, tax considerations,
etc.) Disability (morbidity increases with longevity) Transition
from long-term unemployment into retirement Government policies
(lump-of-labor fallacy) Labor demand explanations (possibly
pseudo-theorems): Jobs get obsolete and older workers lack skills
(education) to switch jobs Older workers less productive than
younger workers
- Slide 25
- Why Early Retirement? The UK Cabinet Office (2000) estimates
that at most one-third of early retirees have planned their
retirement. Labor force status of people not working between 50 and
state pension in the UK: Voluntary inactive Retired (18 per cent)
Taking care of family (14 per cent)? Involuntary inactive Long-term
sick or disabled (44 per cent) Looking for work (10 per cent) Other
reasons for inactiveness Dont need job (5 per cent) Other (10 per
cent)
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- Early Retirement: Denmark
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- Early Retirement: Finland
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- Early Retirement: Sweden
- Slide 29
- Late Retirement: Only in Iceland Labor force participation
rates for men over 65 in the OECD
- Slide 30
- Disability: Morbidity on the Move Disability incidence among
men and women age 55-59 in the Nordic countries
- Slide 31
- Disability: Morbidity on the Move Percent of age-group with
more than 75% disability pension in the Nordic countries
- Slide 32
- Encouraging Work Important to recognise external costs of early
retirement. Policy options: Voucher programs, Quantity
restrictions, Special schemes (FlexJob in Denmark).
- Slide 33
- Conclusion Despite the political unpopularity of reforming
early retirement systems, several countries have already taken
steps to tighten eligibility rules and strengthen incentives to
retire later. However, even these additional incentives are often
weak or clash with supplementary pension provision. Furthermore, in
most countries, few incentives exist to retire late, as reflected
in low labor force participation after the formal retirement age.
Steps taken so far to challenge changing demographic structures:
Denmark ATP, occupational pensions Finland prefunding of TEL, etc.
Iceland voluntary individual accounts, mandatory occupational plans
Norway the petroleum fund Sweden - PPM