The document discusses the case for universal minimum old age pensions. It outlines different approaches in developed and developing countries, and concepts like means-tested versus universal pensions. It presents normative arguments for focusing on poverty in old age. Evidence from Latin America and Europe shows that universal pensions reduced elderly poverty rates. The conclusion considers whether fighting old age poverty should be a priority and whether means-testing or universal schemes are better.

1. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
The Case for Universal Minimum Old Age Pension
Pierre Pestieau
CORE, CREPP and PSE
September 23, 2010
Pierre Pestieau The Case for Universal Minimum Old Age Pension

2. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Introduction
Different approaches in developed and developing
countries:
Scarcity of public funds
Importance of informality
Role of the family as old age support
Recent interest for minimum pension in LDC (World
Bank, ILO)
Pierre Pestieau The Case for Universal Minimum Old Age Pension

3. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Outline
Introduction
Concepts and taxonomy
Normative approach
Positive approach
Some evidence. LA and EU
Old age poverty
Impact and cost of minimum pensions
Conclusions
Pierre Pestieau The Case for Universal Minimum Old Age Pension

4. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Some concepts
A pension system includes both private and public
schemes, particularly when the private schemes are
mandatory and subsidized.
Minimum pension:
means-tested or unconditional
family based or individualized
Old age: when does it start?
clear impact on the cost
contingent on longevity
Pierre Pestieau The Case for Universal Minimum Old Age Pension

5. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Pluses and minuses of means-testing versus
universality:
cheaper
open to disincentives
affects family arrangement when based on family
stigma
Pension formula
p: the level of pension
y : the level of lifetime earning
Ey : the mean value of y
τ : the flat rate of contribution
α: the contributiveness (Bismarckian) parameter
Pierre Pestieau The Case for Universal Minimum Old Age Pension

6. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
We can write
p = τ (α y + (1 − α)E y )
Types of pension system:
Bismarckian: α =1: pension = private saving
Beveridgean: α = 0
Means tested: α < 0
Pierre Pestieau The Case for Universal Minimum Old Age Pension

7. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
p
α =1, Bismarckian
α = 0, Beveridgean
α < 0, Means tested
y
Pension systems
p = max[τ (α y + (1 − α)y ), 0]
Pierre Pestieau The Case for Universal Minimum Old Age Pension

8. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Normative approach
First question: why to focus on old age?
Ascending altruism weaker than descending altruism
Issue of responsibility
No other way to help.
Second question: why to focus on poverty and
not inequality?
Less costly
Rawlsian concept of justice
Pierre Pestieau The Case for Universal Minimum Old Age Pension

9. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Political economy
Observation of individual practices can be
informative.
Surveys show that voters are more willing to
help poor in old age than in working age.
In general public pensions tend to be more
generous where they are Bismarckian.
Voting theory vindicates this view: Programs for
the poor are poor programs.
Pierre Pestieau The Case for Universal Minimum Old Age Pension

10. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Using the parameters τ for generosity and α for
contributiveness (non redistribution), one
theoretically shows that
a Rawlsian decision maker would choose a positive α
if τ is chosen by vote
τ increases with α.
Pierre Pestieau The Case for Universal Minimum Old Age Pension

11. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Evidence: Latin America
Pierre Pestieau The Case for Universal Minimum Old Age Pension

12. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension

13. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension

14. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension

15. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension

16. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension

17. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Evidence: EU
Poverty rates for the elderly population, before and after the universal
pensions
Pierre Pestieau The Case for Universal Minimum Old Age Pension

18. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Disincentive effects of means-testing and HH approach
Labor supply
Saving
Marriage
HH formation
Pierre Pestieau The Case for Universal Minimum Old Age Pension

19. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Limits of minimum pension at alleviating poverty
Take up issue (stigmatisation)
Sharing with non elderly and poor HH members
Non financial needs (health and care)
Pierre Pestieau The Case for Universal Minimum Old Age Pension

20. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Cost is a function of
age at which benefits are awarded
prevailing longevity
generosity of benefits
efficacity of means testing
fiscal capacity of the country concerned
Pierre Pestieau The Case for Universal Minimum Old Age Pension

21. Introduction
Outline
Some concepts
Normative approach
Positive approach
Evidence: Latin America
Evidence: EU
Conclusion
Conclusion
Crucial question: should fighting poverty in old
age be a priority?
Other question: means test or universal scheme?
Pierre Pestieau The Case for Universal Minimum Old Age Pension