Have we achieved adequate, safe and sustainable pensions? · Have we achieved adequate, safe and sustainable pensions? Axel Börsch‐Supan MunichCenter fortheEconomics ofAging(MEA)

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


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


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


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


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


22

Have we achieved adequate, safe and sustainable pensions?

Have we achieved adequate, safeand sustainable economic conditionsfor the young?

Documents

Have we achieved adequate, safe and sustainable pensions? · Have we achieved adequate, safe and sustainable pensions? Axel Börsch‐Supan MunichCenter fortheEconomics ofAging(MEA)