International Developments in Retirement Income Policies

Transcription

1 MPI Foreign and International Social Law Munich 19 March International Developments in Retirement Income Policies Prof. Axel Börsch Supan, Ph.D. Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Technical University of Munich (TUM), and NBER CRAPR ANU Retirement Incomes Policy Dialogue, Canberra, 01 November Demographic challenges: population aging and migration 2. Structural challenges: design and political economy 3. First pillar (PAYG) reforms: theroleofautomatic stabilizers 4. Reforms in occupational and private pension pillars: the role of information, transparency and default/automatic enrolment 1

2 Old Age Dependency Population 65+/population :0 40:0 4 US China BabyBoom BustBust transition Past low fertility and longevity Australia High current fertility 5 2

3 Need at least three different policy instruments to tackle demography: Baby boom/bust: pre funding (intergenerational redistribution; fiscal consolidation) Longevity: adjust working life (retirement age up to maintain proportions) Fertility: quantity/quality (not just #kids: education & health) 6 1. Demographic challenges: population aging and migration 2. Structural challenges: design and political economy 3. First pillar (PAYG) reforms: theroleofautomatic stabilizers 4. Reforms in occupational and private pension pillars: the role of information, transparency and default/automatic enrolment 3

4 More generous, less efficient Early retirement R 2 =0.49 More efficient, less generous Lack of adequacy old-age poverty Source: OECD Financial sustainability vs social adequacy Old age labor force participation (Men 55 64) Japan Sweden United States Netherlands Germany United Kingdom Canada Denmark Italy Spain Belgium France 4

5 Labor force exit age Main challenge: reform backlash Net replacement rate for the median earner > 67% < 50% Source: OECD pensions at a glance 17 Main challenge: reform backlash 11 5

6 Old age poverty (OECD definition) 65+ all Source: OECD PAG 17: Percentage with incomes less than 50% of median household disposable income Demographic challenges: population aging and migration 2. Structural challenges: design and political economy 3. First pillar (PAYG) reforms: theroleofautomatic stabilizers 4. Reforms in occupational and private pension pillars: the role of information, transparency and default/automatic enrolment 6

7 1. Reforms to prevent poverty Means tested base pension 2. Reforms for the normal worker a. Pay as you go pillar b. Fully funded pillars Retirement age Life expectancy Replacement rate System dependency Mandatory (occupational, state) Voluntary (individual) NDC Nudging 1. Reforms to prevent poverty Means tested base pension 2. Reforms for the normal worker a. Pay as you go pillar b. Fully funded pillars Retirement age Life expectancy Replacement rate System dependency Mandatory (occupational, state) Voluntary (individual) NDC Nudging 7

8 Currently Labor income (0%) Pension income (0%) Hope Labor income (0%) Partial pension Labor income Pension (0%) Danger Labor Partial pension income (0%) Pension Labor income (0%) Actuarial adjustment factors at earliest age of claiming benefits Current legislation Austria 4.2 Germany 3.6 France 5.0 Italy Spain Greece 6.0 Sweden Finland 4.8 US 6.67 The table shows the adjustment factors for statutory early retirement. Many countries have additional pathways not included here. Source: OECD (13) and Queisser and Whitehouse (06). Add UK and France from ISSP. 8

9 Trends in Males' Total Labour Supply: Treated vs. Synthetic Control Total Labor Supply aged Total Labor Supply aged Total Labor Supply aged year year year Australia Synthetic Australia Austria Synthetic Austria Belgium Synthetic Belgium Total Labor Supply aged Total Labor Supply aged Total Labor Supply aged year year year Denmark Synthetic Denmark France Synthetic France Germany Synthetic Germany Börsch-Supan, Bucher-Koenen, Goll, Kucluk-Kos Demographic challenges: population aging and migration 2. Structural challenges: design and political economy 3. First pillar (PAYG) reforms: theroleofautomatic stabilizers 4. Reforms in occupational and private pension pillars: the role of information, transparency and default/automatic enrolment 9

10 1. Prevent poverty Means tested base pension 2. Reforms for the normal worker a. Pay as you go pillar b. Fully funded pillars Retirement age Life expectancy Replacement rate System dependency Mandatory (occupational, state) Voluntary (individual) NDC Nudging

11 60% 50% 40% % % % Households with: Riester pension Occupational pension Other individual 32% accounts 7% 13% 11% 13% 19% 15% 19% 24% 23% 26% 21% 16% 23% 33% 25% 15% 15% 44% 38% 27% % 15% 16% 0% SAVE 03 SAVE 05 SAVE 06 SAVE 07 SAVE 08 SAVE 09 SAVE SAVE 13 Riester pension Occupational pensions Private pensions Source: Börsch- Supan et al Subsidy as percent of total (!) contribution Figure 5: Depth of subsidies to Riester pensions % 0 Mean= Euro Single, no children Single, one child Married, one income, two children Annual earnings (Euro) Note: Direct subsidy/the tax advantage as a percentage of savings in form of the new supplementary pensions. Source: Deutsche Bundesbank (02)

12 Are you eligible for a government subsidy? Not eligible (percentage of households) Income quintile Law Own assessement Diff Total Source: Coppola and Lamla Do you have an occupational pension? Do you know the contributions to your Wissen über bav Beiträge occupational pension? Don t know that have occupational pension: 42% Know about occupational pension: 58% Sources: Linked IAB data and SAVE survey Knows Weiß weder neither noch 34% 34% Weiß Doesn t eigenen know Beitrag nicht own8% part: 8% Knows Weiß Bescheid both 35% 35% Doesn t Weiß know Arbeitgeberbeitrag nicht employers part 23% 23% 25 12

13 Huge variation in administrative costs 1 Administrative costs (basis points) Number of contract Börsch-Supan/Gasche MEA-DP 13 13

14 Europe s ageing challenges are large Political challenges of the sustainability vs. adequacy debate Additional funding too late for the baby boomers There are many good reform ideas in Europe Notional defined contribution systems which adapt to population aging and create a sense of actuarial fairness Automatic adjustment of retirement age to life expectancy Sustainability factor: Index benefits to dependency ratio Voluntary second and third pillar took up in Germany, but still serious problems Wide-spread lack of information: employees and employers Markets failed to weed out costly pension plans 14