Longevity and Public Policy: Ad HocResponses or Structural Reform? Dalmer Hoskins International Federation on Ageing Prague, 2012
Pension Reform at a Crossroads• Longevity is driving pension reform: Men: + 7.9 years of added life by 2050 Women: +6.5 years of added life by 2050• “Savings” of recent benefit cuts could be wiped out by longevity
Falling birthrates and shrinkinglabor force• In OECD countries, labor force will drop from 4 workers for 1 pensioner to 2 workers by 2050• Most dramatic increases in life expectancy will be in developing countries, China and India
Life expectancy after pensionable age in selected OECD countries, men 30 25 20# of Years 15 1958 2010 2050 10 5 0 France Ireland Switzerland U.K. U.S. Country Source: Pensions at a Glance 2011, OECD
Acceleration of pension reform• Fiscal pressures have forced governments to tackle pension reform: Greece, Hungary, Italy, Spain, etc.• Globalization of pension reform: financial markets react to national pension issues
Lessons learned from pension reform:• Pension reform is not just changing the law, but also changing human behavior (work, savings, and family)• The issue for 2050: Rising poverty and income inequality among the elderly• Extension of public pension coverage is stalled in the developing world
The search for new solutions:• Privatization of old-age pensions is not the magic bullet• Raising social security contributions is mostly off the table (15-20% of earnings and no more)• Traditional social security models may not work in developing economies
Will countries prefer the ad hocapproach or restructuring theirretirement income security?Option I: Strengthening the long-term solvency of the public retirement program• Link the retirement age (not benefits) to increases in life expectancy (single most effective tool)• Encourage workers to stay in the labor force longer• Discourage early retirement
Option 1 (continued)• Equalize pensionable age between men and women.• Support the development of complementary retirement savings• Improve government capacity to collect taxes, maintain records and pay benefits as promised
Ad hoc or structural reform?Option 2: Shift retirement savings gradually from the public purse to the individual, but what works?• Mandatory second-pillar coverage: Australia, France, Switzerland, Netherlands• Voluntary tax deferred retirement savings (Canada, USA, Ireland and most of Asia and L.A.)• Government matching of retirement savings (Germany, New Zealand)
Ad hoc or restructuring?:Option 3: Coherent strategies to alleviate old- age income poverty• Social pension/social floor advocated by UN,WHO and ILO: What is the retirement future for 3/5 of the world’s population?• Minimum benefits for all pensioners• Will this century see re-emergence of poverty among the elderly as a political issue around the world?
What is the public understanding oflongevity increases/demographicaging?• Is the current economic crisis an opportunity or a barrier to addressing long-term retirement reform?• Do we see evidence that the political leadership can reframe the “social contract” for an aging population?