Recent Pension Reforms Research Articles

Preventing reforming unequally

Population aging has forced policy makers in most developed countries to reform pension systems with the aim of maintaining or re-establishing financial sustainability. This usually involves cost-cutting measures like later pension eligibility ages and lower replacement rates. Such reforms face harsh trade-offs with the objective of providing adequate pensions. Social welfare and inequality have emerged as crucial concerns about recent pension reforms, stressing that the lack of “social sustainability” may undermine financial sustainability. This paper analyzes such trade-offs and may explain why support for pension reform has dwindled in Europe. The paper evaluates reform effects on financial sustainability, social welfare, and intra- and inter-generational equality in a rich unified framework with several dimensions of heterogeneity and various behavioral reactions. Our simulations shed light on the complex distributional effects of pension reform on different cohorts and societal groups. They show where policy tends to reform unequally and why reforms may fail to find voters’ approval.

Confronting increases to labour and capital taxes to finance the pension deficit in the Dominican Republic: a real business cycle approach

Ageing demographics have prompted widespread pension reforms across Latin America. This has left several countries with a significant financial burden related to the transition from one system to another. In this article, we evaluate two alternative methods of financing the recent pension reform in the Dominican Republic. We build on a simple real business cycle model with perfect competition and add a fiscal block that allows us to simulate shocks to the tax rates on capital and labour, based on the present value of the pension reform cost. We find that increasing the tax rate on returns to capital would not only fill the pension deficit, but also have a significantly smaller adverse effect on the macroeconomy, when compared with an increase to the tax on labour.

Who Lacks Pension Knowledge, Why and Does it Matter? Evidence From Swedish Retirement Savers

Recent pension reforms have shifted a larger responsibility towards savers. Individuals therefore need better knowledge of the rules and incentives embedded in the pension system to adequately save and prepare for retirement. In this paper, we use a novel Swedish survey matched with high-quality administrative data to show that many lack, and feel that they lack, such pension-specific knowledge. We also show that the most economically vulnerable groups know the least. Linking pension knowledge to behavior, we find that knowing less is associated with lower preparedness for retirement, even after controlling for financial literacy and subjective knowledge. Moreover, a large majority state the complexity of the pension system, or that they have planned to learn more about pensions but that it just hasn’t happened, as reasons for why they do not have sufficient knowledge.

Common Factor Cause-Specific Mortality Model

Recent pension reforms in Europe have implemented a link between retirement age and life expectancy. The accurate forecast of life tables and life expectancy is hence paramount for governmental policy and financial institutions. We developed a multi-population mortality model which includes a cause-specific environment using Archimedean copulae to model dependence between various groups of causes of death. For this, Dutch data on cause-of-death mortality and cause-specific mortality data from 14 comparable European countries were used. We find that the inclusion of a common factor to a cause-specific mortality context increases the robustness of the forecast and we underline that cause-specific mortality forecasts foresee a more pessimistic mortality future than general mortality models. Overall, we find that this non-trivial extension is robust to the copula specification for commonly chosen dependence parameters.

Public Pension Generosity and Old-Age Poverty in OECD countries

AbstractPension adequacy is gaining importance as old-age poverty remains a pressing problem. In many advanced welfare states, the population is ageing rapidly and recent pension reforms have led to cuts in public pension provision. There are, however, few comparative longitudinal studies on the relationship between pension generosity and old-age poverty. This study provides a comparative empirical assessment of how the prevalence and depth of old-age poverty relates to generosity of public pension benefits in 14 advanced OECD welfare states from 1980-2010. We focus on the role of mandatory public pension provision of mainly first tier schemes that grant the major share of retirees’ income in most countries. We use data on theoretical pension replacement rates for retirees who had different working-age incomes. In order to address endogeneity issues, we adopt an instrumental-variable approach. Our main finding shows that pensions systems and earnings-related schemes, in particular, are quite efficient in reducing the risk of old-age poverty. Yet they still do very little to alleviate poverty among those pensioners in the most disadvantaged situations. We also found that redistribution within the pension system does not substantially contribute to poverty alleviation.

Recent pension reforms in Europe: More challenges, new directions. An overview

AbstractDuring the last 30 years, all European Union member states have reformed their pension systems. In view of ongoing and intensifying population aging, efforts have aimed at containing the future rise of the contribution rate, improving the system dependency ratio, lowering the benefit ratio and/or infusing tax money or other financial resources into the system. Moreover, since about the early 2000s, we can observe a move towards a multi‐pillar pension system in countries hitherto running a dominant‐pillar system: private pre‐funded occupational pensions and individual provision for old age are given larger roles within the public–private mix of retirement income. An analysis of reforms shows a finite menu of adjustment options, and concrete measures have to be adapted to nation‐specific institutional contexts. Finally, we can conclude that pension reforms focusing on long‐term financial sustainability may increase the risk of old‐age poverty and, thus, violate a central objective of pension schemes.

Pension communication, knowledge, and behaviour

AbstractMany recent pension reforms require individuals to make more decisions on supplementary savings, investment choices, etc. Governments and the pension industry try to assist individuals through pension communication but little is known about the effectiveness of such policies. This paper uses Dutch longitudinal data to analyse the causal links between communication, pension knowledge, and conscious pension decision-making. A robust finding is that pension knowledge has a positive causal effect on active pension decision-making. Providing an annual pension statement might have a small positive effect on pension knowledge, but this result is sensitive to the identifying assumptions.

Financiarización e inversiones de los fondos de pensiones en la Alianza del Pacífico

Las reformas recientes a las pensiones en América Latina adoptaron un sistema multipilar como respuesta al cambio demográfico y a las necesidades de ahorro. Algunos de estos nuevos esquemas previsionales fortalecieron los sistemas financieros nacionales y acercaron las economías al proceso de financiarización. Este documento caracteriza, desde un enfoque descriptivo, la relación que surge entre los sistemas pensionales con capitalización individual y la financiarización de la economía para el caso de la Alianza del Pacífico. A partir de un análisis factorial concluye que las inversiones pensionales de Chile, Colombia, México y Perú exhiben una relación de dependencia con la inversión agregada y que particularmente las inversiones destinadas al sector financiero revisten mayor relevancia para el conjunto de los países bajo examen.

Implications of an aging population on pension systems and financial markets

In this paper, we introduce a macroeconomic model of overlapping generations to analyze the impacts of the demographic changes as well as the interactions between pension system, bond and stock markets. Furthermore, we examine how the pension system influences the distribution of wealth, consumption and saving within generations.In the context of this model, we show a drastic decline of capital market returns due to an aging population. Moreover, we examine the impacts demographic changes can have on individuals’ welfare for an existing pay-as-you-go pension scheme. Raising the pensionable age combined with a decrease of the contributions seems to be the best policy. On the other hand, increases in contributions as a result of demographicchanges show the highest welfare losses. Taken into account the recent pension reforms in Germany, raising the retirement age or a faster transition from a pay-as-you-go pension system to a capital funded one would make sense. But it is questionable whether such a policy will be enforceable with an aging electorate.

The features of Japanese labour law

This article considers the peculiarities of Japanese labour law that differ the most from the traditional Russian approach to labour regulation. The authors sought to fill the information vacuum in Russian legal scholarship dedicated to Japanese law, as well as to examine the unique features of this branch of law. It is impossible to consider, in one article, an exhaustive list of questions about Japanese labour law, which are of interest to researchers. Therefore, the choice of topics for analysis was dictated by two types of considerations: the uniqueness of Japanese regulation and the relevance of the topic to Russian reality. Within the first group, the authors examined the peculiarities of the arrangement, modification, and termination of employment contracts in addition to the features of the wage structure. Also, the practice of exercising the employer’s right to order the employee to stay at home while continuing to pay wages is analysed due to the absence of a clause in Japanese law on the right of the employee to be provided with work. In the second group, the issue of an employment policy for elderly people in Japan was considered as it is relevant for Russia in light of the recent pension reform. The methodological basis of the study was the use of a functional comparative method. The use of this method allowed the authors to ascertain greater flexibility in Japanese labour law regarding changes in working conditions, and a higher degree of labour mobility in comparison to Russia.

Comparative assessment of occupational risks at enterprises of oil production and coal industries in the Irkutsk region

The historical development of human civilization has shaped a completely justified life axiom: if you want to achieve something, work hard. And it is true, without making efforts a person, quite logically, will not be able to satisfy his or her basic needs, to acquire the necessary material goods and services in the absence of money. Yet in fulfilling their labor functions, people find themselves in the workplace environment with harmful and hazardous factors that can lead to negative consequences for health and life, and this is especially of relevance in the light of the recent pension reform in Russia. It is perfectly reasonable to believe that each and every production activity is not able to manage without raw materials that are provided by certain industries, one of which is mining. A procedure for assessing occupational hazards exists precisely to identify negative workplace factors and then take corrective actions. In this paper, the assessment was carried out for enterprises producing natural recourses of strategic importance for Russia, i.e. oil and coal. We estimated occupational hazards using the method of assessing individual occupational hazards for employees of mining enterprises in the Irkutsk region and measures to reduce them.

Workforce and Stimulation of Economic Growth in Russia

The presented study determines the prerequisites for accelerating economic growth and improving the quality of socio-economic development by modernizing approaches to the regulation of the labor market and reproduction of labor potential.Aim. The study aims to identify problems in ensuring economic growth in Russia by the workforce and to propose approaches to solving these problems.Tasks. The authors characterize the current rate and prospects of changes in economic growth in Russia; describe the problems of ensuring economic growth from the perspective of a factorial approach (through the example of the labor factor); analyze the causes of labor market imbalance and inefficient provision of workforce for the economy; propose recommendations on improving the process of ensuring economic growth by the workforce at the current stage of development of the Russian economy.Methods. This study applies methods of institutional, structural, and statistical analysis to the processes of economic growth and socio-economic development. A factorial approach to the description of economic growth is used during the analysis of this phenomenon. Its rate is determined by the quantity and quality of (resource) production factors. The labor factor is thoroughly analyzed. The problems of ensuring economic growth in Russia by the workforce are examined from the perspective of the systems approach using methodological techniques of variant and situation analysis.Results. The study substantiates the opinion that the modern Russian economy has stalled in a state of near-zero growth, mostly due to the low efficiency of the implemented socio-economic policy. It is therefore necessary to increase the rate of economic growth. The authors use the factorial approach (through the example of the labor factor) to examine the sufficiency of resourcing of economic growth with production factors. It is shown that, in light of the recent pension reform, workforce in modern Russia is sufficient and even superfluous. The key qualitative problems in the operation of the labor market are comprehensively analyzed, including the structural and quantitative discrepancy between specialist training in the educational system and labor requirements; overeducation of the population (people perform work that requires lower qualification than their actual level of education and/or professional training). This study shows the specificity of these problems and provides recommendations on solving them, which requires revising approaches to the development and implementation of the state economic policy.Conclusions. Russia has the resource capabilities (in terms of workforce) to intensify economic growth and make a breakthrough in socio-economic development. Analysis of the existing problems in this field shows that these issues can be solved. However, this requires a focused, systematic effort spearheaded by the government, which is impossible without improving the implemented state economic policy.

The Effects of Increasing the Eligibility Age for Public Pension on Individual Labor Supply: Evidence from Japan

This paper investigates the effects of increasing the eligibility age for public pension on workers' retirement decisions, focusing on recent Japanese public pension reforms. In Japan, the pensionable age for Employees' Pension Insurance benefits gradually increased from 60 to 65 for males over the course of a decade. Using individual-level administrative data and a regression discontinuity design, I find that raising the pensionable age for flat-rate benefits by one year increases male employment at the critical ages by about 7-8 percentage points. Individual labor supply responses are heterogeneous across closeness to the implementation date due to anticipatory responses. I also find some evidence of spillovers from an affected husband to his wife and children and effects on other labor market outcomes.

Increasing the Public Pension Age: Employers’ Concerns and Policy Preferences

Abstract Governments increasingly focus on extending working lives by raising public pension ages and in some cases by linking pension ages to changes in the life expectancy. This study offers novel insights into how employers perceive such reforms and their consequences for their organization. A survey among employers (N = 1,208) has been carried out in 2017 to examine their reactions to a recent pension reform in the Netherlands. Statistical analyses are performed to examine employers’ support for the current policy of linking the public pension age to changes in average life expectancy, as well as the support for 2 alternative policies that are often considered in public policy debates: a flexible public pension age; and a lower public pension age for workers in physically demanding jobs. Results show that particularly employers in construction and industry are extremely concerned about the physical capability of employees to keep on working until the public pension age. These concerns are the driving forces behind the lack of support for linking public pension ages to changes in average life expectancy (22% support) and the overwhelming support for a lower public pension age for physically demanding jobs (82%). The introduction of a flexible pension age (78% support) is not firmly related to employers’ concerns about capability or employability of older workers.

The demand for older workers and age discrimination: International experience and Russian realities

This paper is devoted to the analysis of the demand for older workers and age discrimination in the Russian labor market. The recent pension reform has brought widespread attention to these issues. Macroeconomic analysis showed that, despite the growth in the retirement age population and the increase in their presence in the labor market over the past decade, the demand for older workers has still been limited. One of the reasons for this situation is the relatively high age discrimination both in society and in the Russian labor market. Given this circumstance, raising retirement age should be accompanied by demandside efforts such as improving age discrimination legislation and age-friendly employment policy. The analysis of extensive international experience allows us to develop recommendations that will help smooth out negative effects of raising retirement age for certain categories of workers.

You know something is wrong when your grandmother starts protesting: The impact of the rise in State Pension age on women in the UK

This paper argues that recent pension reforms in the United Kingdom have been a major consequence of the financial crisis. It is further argued that this area of policy represents a key site of retrenching inequalities. These reforms have had drastic effects on many older women with a nationwide campaign developing as a consequence. The WASPI acronym arises from one of the founding groups of the campaign – Women Against State Pension Inequality (WASPI). ‘WASPI’ has come to stand for those women born in the 1950s who have been most severely impacted by the reforms. I apply feminist theory as an analytical framework to unpack the gender-blindness of this particular aspect of government policy. The pension reforms are contextualised against a background of financial crisis, the ensuing austerity agenda involving reductions in public spending, and attempts to dismantle the welfare state.

Financial crisis and pension reform in Spain: the effect of labour market dynamics

ABSTRACT We analyse the effect of post-financial crisis unemployment dynamics on the Spanish pension system’s financial health using Aggregate Accounting. We compare the basic scenario where the current labour market dynamics persist with a full employment (best-case) scenario. We find that economic risk is the main driver of unsustainability in the short run. However, in the long run, the main driver of expenditures lies in the ageing demographic structure. Our results suggest that future reforms should increase labour market participation but confirm that recent pension reforms do not attain sustainability in the long run, indicating the need of further pension reforms.

Retiring Employees, Unretired Debt: The Surprising Hidden Cost of Federal Employee Pensions

Ottawa provides its employees with defined-benefit pensions that promise relatively generous benefits to a large current and former workforce. Being largely unfunded, these plans require future taxpayer support. They also create taxpayer risk because the economic value of the benefits they will provide can fluctuate by tens of billions of dollars annually. Current accounting practices understate this burden and the risks these plans create for taxpayers and, potentially, for the employees themselves. Official figures on the current cost of these plans and their accumulated obligations are based on notional interest rates that are too high for this kind of commitment. Since pension promises are guaranteed by taxpayers and indexed to inflation, the appropriate rate for discounting the value of future payments should be the yield on federal-government real-return bonds (RRB), which for years has been much lower than the assumed rate in official figures. Correcting this distortion would produce a fair-value estimate of $245.9 billion for Ottawa's unfunded pension liability at the end of 2016/17 – around $27,000 per family of four and $96 billion higher than the reported number. Because the unfunded pension liability is part of Ottawa’s debt, applying this fair-value adjustment raises the net public debt from the $631.9 billion reported at the end 2016/17 to an adjusted $727.9 billion. Recent federal pension reforms raised participants’ share of the funding costs for these plans: for the main Public Service Plan, the reforms aimed at a 50:50 split between contributions from participants and contributions from the government as employer. Still, using notional interest rates that are higher than the appropriate ones means that the reported costs of these plans – and, therefore, the contribution rates that determine participants’ shares – are too low. Even the higher employee contributions anticipated by the reforms would leave the taxpayers’ true share far above 50 percent. A fair-value approach to the current service cost would ensure that participants and taxpayers share equally the actual cost of accruing benefits. Even 50:50 sharing of federal pensions’ actual costs as they accrue would leave taxpayers exposed to fluctuations in the value of previously earned benefits. Ottawa could protect taxpayers from this risk by capping employer contributions at a fixed share of pensionable pay. To relieve taxpayers of their current sole responsibility for risks in the federal plans, Ottawa would need to switch to a different type of plan with benefits based not only on salary and years of service but also on the plans’ funded status. Such plans, already common in much of the provincial public sector, have a variety of labels – shared-risk and target-benefit are two common ones. Their common feature is that when things do not go as expected, the plan sponsor and the employees share the costs and benefits of the new reality. More economically meaningful reporting of the plans’ benefit values and their cost to taxpayers would foster improvements in Canada’s retirement saving and income system generally. And it would foster reforms that would provide federal employees with better-funded pensions and taxpayers with protection against risks too few know they face.

Aging and Work Ability: The Moderating Role of Job and Personal Resources.

Objective: Demographic changes involving western countries and later retirements due to the recent pension reforms induce a gradual aging of the workforce. This imply an increasing number of workers with health problems and a decreasing of ability to work. In this direction, the present study aims at examining the role of job and personal resources between age and work ability within nurses.Method: The study was cross-sectional and not randomized; data were collected by a self-report questionnaire during a multi-center survey conducted in two Italian hospitals in 2016. In this way, 333 nurses were reached.Results: Multiple linear regression showed that age is significantly and negatively associated to work ability, and that job resources (e.g., decision authority and meaning of work) and personal resources (e.g., hope and resilience) moderate the relationship between age and work ability.Discussion: These results highlight that investing in work and personal resources to support WA is even more relevant for those professions where high physical effort is required.

The effects of recent Spanish pension reforms on sustainability and pension adequacy

ABSTRACTThe Spanish pension system has been recently reformed as a response to the demographic challenge and with the objective of ensuring the sustainability of the pension system in the long-term. The overall reforms include changes in the majority of the system parameters, a new indexation rule and a sustainability factor that links life expectancy and the first pension amount. The aim of this work is to analyse how these reforms affect two important features of a pension system: fiscal sustainability and adequacy. For this purpose, the real internal rate of return (IRR) of the lifetime contributions and benefits and the prospective gross theoretical replacement rate (TRR), both before and after the reforms, have been computed. The calculations are case-study based, for a few hypothetical workers who are sufficiently representative of the earnings and retirement patterns in Spain. The results show that the real IRR is 0.7 p.p. lower and the prospective gross TRR is 18 p.p. lower after the reform process for the base case of a man with an uninterrupted career of 40 years with average earnings and a retirement age of 65. In addition, pension reform process in Spain has different effects among the individuals depending on the gender, level of earnings, retirement age and career length.