1. Actuarial Association of Europe, Social Security
Subcommittee, Adequacy Task Force
 Principles
 2012 Adequacy Report - remarks from an actuarial
perspective
 From pension adequacy to life-long security
 From fragile solidarity to intergenerational fairness
 From actuarial to societal fairness
 From incentives/disincentives to a robust labour market
 Measurement tools (indices)
 Working frame and collaboration
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2. Sound Pension Systems’ Principles
Safety/ Poverty alleviation (minimum pension/income)
Equity (actuarial, intergenerational)
Consumption Smoothness (intergenerational)
Transparency (policy valuation indicators, communication
to the public)
Foresight (investment)
Solidarity (from stronger to vulnerable groups/society
fairness)
Sustainability (growth, valuation and financial reporting)
Dignity (old age)
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3. AAoE aim: Among other adequacy issues, also to
shed light on those not yet raised by the ISG
Issues, Comments on the Adequacy of Pensions Report 2012
 How much longer will people live?
 Who will bear the new imbalances of the system?
 Are incentives and disincentives for pensions’ taking up properly
balanced?
 Do they lead to improved adequacy and, if so by how much?
 What are the implications of reforms for different cohorts of participants?
 What are the implications of reforms for workers according to their
occupations (manual/white/blue collar)?
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4. AAoE aim: Among other adequacy issues, also to
shed light on those not yet raised by the ISG
 What are the implications of reforms for various workers according
to their employment and unemployment ?
 Should pension benefits reflect the differential inflation rate
experienced by the elderly ?
 What about representation?
 To what extent should the concept of healthy life expectancy be
reflected in policy-making ?
 What was the role of investment risk in undermining adequacy in
2nd and 3rd pillar schemes ?
 Does transparency play a role concerning adequacy?
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5. From fragile solidarity to intergenerational fairness
 Contributions and benefits should be properly balanced within
generations/cohorts
 Poverty in old age should be overcome, even if gradually
 All living generations should share the cost of imbalances
 Living standards of workers and pensioners should be
balanced (The transition from working life to retiree life should
allow for a smooth adjustment of consumption patterns)
 The State has a role to play in overseeing these balances
 Attention should be paid to possible adverse labour market
outcomes of increasing pension ages (elderly, young people
employment etc.)
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6. From adequacy to life long security
 Social fairness in regard to vulnerable groups of people
should prevail over actuarial equity
 Whether pension indexation should reflect the differential
inflation rate experienced by the elderly should be examined
 Pension capital assets allocations should be more strictly
audited and ranked according to risk, yield, performance and
expenses
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7. From incentives/disincentives to a robust labour market
 Working careers should be prolonged
 Incentives for “late” payment of pensions and disincentives for “early”
payment should be actuarially balanced
 Participation rates for middle ages (50-65) should be strongly
enhanced
 Labour market policies should be designed to facilitate the
employability of those at older ages
 All working categories should be covered
 Policies in relation to increasing pensionable age should take into
account the statistics of healthy life expectancy
 Contributions should be properly distinguished between those
intended to finance means-tested benefits (pillar 0) and those
intended to finance earnings-related benefits to facilitate transparency
in relation to taxation and similar aspects
 Lump sums should be annuitized
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8. Illustrative list of measures to be potentially used for
proper indicators’ construction enhancing transparency
╫ Present Value of Contributions (gross/net)
╫ Present Value of Benefits (gross/net)
╫ Internal Rate of Return
╫ Investment Yield/Performance
╫ Percentage of pension assets invested in “risky” asset classes
╫ Life expectancy per cohort
╫ Healthy life expectancy per cohort
╫ Inflation rate experienced by older persons, CPI
╫ Ratio of income of taxpayers minus contributions (before, after taxes)/
Pension benefit (before, after taxes)
╫ Ratio of years spent in working life/ years spent in retirement
╫ Ratio of living standards/consumption per cohorts under comparison
╫ Contribution and career density
╫ Labour market rates (Er, Ur, Pr, Disability)
╫ Statutory, effective and early retirement age
╫ Pension indexation
╫ Wage/Career profiles per cohorts, genders, occupations
╫ Demographic and economic dependency ratio
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9. Working frame and collaboration
Until 08 05 2014 (SSSC meeting in Brussels):
 Prioritize, in collaboration with the WGAge and/or ISG, which points
described above should be the object of future feasible work in
parallel with the group
 Propose which are the best tools to measure so as to bring out what
we have to say by numbers
From 09 05 2014 – September 2014:
 Propose how they will be used (ratios, differences, confidence levels,
limitations)
 Finalize technical Issues (discount rates etc.)
 Examine mechanisms to convert measurement tools to indices
 Extract the above proposed tools/indices from country questionnaires
or ready reports whichever is easier
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10. Thank You, Marianna Papamichail SSSC, ADQ TF Chairperson
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Discussion/ Questions