Conference ‘Pension adequacy in a changing society’

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Financial and social sustainability of pension systems Frank Vandenbroucke University Amsterdam Brussels 2 July 2018 Declining Theoretical Replacement Rates (TRR) notably on the basis Average Work Duration (AWG) Pension Adequacy Report Vol 1 p 112 Change in benefit ratios incl private pensions ( ) (includes composition effects) ratio = ๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž ๐‘๐‘๐‘ ๐‘๐‘๐‘๐‘๐‘๐‘๐‘๐‘๐‘๐‘๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž๐‘Ž ๐‘ค๐‘ค๐‘ค ๐‘ค BE BG CZ DE IE ES FR IT CY LU HU MT AT PL SI SK FI UK dk ee hr lv lt nl pt ro se 10 20 30 40 50 60 70 Benefit 2070 2016 No change (Musgrave rule) This slide following slides: data from Ageing Public spending % GDP EU 0 4 6 8 12 14 16 18 2020 2030 2040 2050 2060 Impact dependency (no coverage labour market ratio) with impact + actual forecast (incl interaction) decomposed Coverage: (pensioners)/(population 65+) Labour market: employment (=> GDP) ratio: (average public pension)/(average wage Policy-driven (*) 2016-2070: -2 DK EE EL HR LV LT NL PT RO SE NO EU* 2016-2070 interaction ! Generous understanding โ€˜policyโ€™: & markets โ€˜policyโ€™ Decomposition mixes policy endogeneous developments Intergenerational risk sharing: contract โ€ข Pensions managing uncertainty Options for sharing Defined contribution Musgrave rule Fixโ€ฆ Contribution rate (net) Economic Risk workers Shared Demographic retirees Pointers policies to reconcile financial โ€“ Long-term outlook is not reassuring a number Member States: Decreasing TRR In most countries an increasing gap between Standard Pensionable Age (SPA) effective exit age => coverage/adequacy risks โ€“Social requires fair intergenerational โ€˜growth riskโ€™ โ€˜demographic should be neutralized โ€“Flexible retirement: length career more important than (compare Fig 66 67 Report) โ€ขLabour โ€“The importance โ€˜access protectionโ€™ all (European Pillar Social Rights) Resources European Commission SPC The rule: see Myles โ€˜A New Contract Elderlyโ€™ Esping-Andersen Why we need Welfare State OUP 2002 Application Erik Schokkaert Pierre Devolder Jean Hindriks Towards equitable sustainable points system A proposal reform Belgium Journal Economics Finance First View 27 April pp 1-31 https://doi org/10 1017/S1474747218000112 Belgian Reform 2020-2040 www academischeraadpensioenen conseilacademiquepensions frankvandenbroucke uva