Sustainable pension reform on the basis of intergenerational equity: a proposal

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Sustainable pension reform on the basis of intergenerational equity: a proposal’ Frank Vandenbroucke University Amsterdam Conference Ageing and Distributive Justice Barcelona 11-12 July • The Belgian Commission Pension Reform Working Group Report 2015 Intergenerational intragenerational justice: role pensions (Schokkaert) risk sharing: proposal 2020-2040 First report: June 2014 Additional report flexibility part-time strenuous work www pensioen2040 belgie be pension2040 belgique New Federal Government (Ch Michel): Sept Statutory age: 67 by 2030 w r t specific advantages in civil servants’ system Creation ‘National Committee’ ‘Knowledge Centre’ ‘Academic Council’ 160 28 140 26 120 24 100 22 80 20 60 40 18 16 0 14 2020 2025 2035 2040 2045 2050 2055 2060 Old age dependency ratio EU Total economic Life expectancy at 65 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2028 2031 2034 2037 2043 2046 2049 2052 2058 001 000 Belgium with constant life 12 10 8 6 4 2 Impact (no change coverage benefit labour market ratio) actual forecast (incl interaction) impact + Change ratios incl private ( ) 70 50 30 Benefit Structure presentation (based E Schokkaert) Source: Erik Schokkaert seminar ‘Justice between groups’ UCL individuals No problem are free (and remain responsible) to allocate their (equal) endowments over life-cycle Private schemes: funded defined contribution Minimum provided government: mild paternalism rider argument Overlapping (ex ante) equally endowed cohorts Pay-as-you-go system: possibility sharing Mixed (partial funding) preferable Insurance is efficient but may ex post look like redistribution a) Maximin “life-cycle endowment”: relevance minimum b) Should public restricted providing minimum? Arguments favour Bismarckian (“earnings- related”) features: – risk-sharing Minimize distortions Political support for c) Importance non-contributory rights (periods care involuntary unemployment) d) differences expectancy: uniform annuities impose ante-solidarity groups lower from lower-income men higher- income women genetic e) respect working conditions Maximise endowment least well-off cohort so that this can maximise its members: through mix pay-as-you/funding Musgrave criterion as reference point priority pension; negative shock will lead some compression structure earnings-related “just” retirement taking into account Pensions = managing uncertainty integrating adjustment mechanisms Commission: indexing parameters systems longevity (e g career requirements & age) Options ‘Conditional certainty’ individual citizen Stabilize ???????????????????????????????????????????????????????? ???????????????????????? ???????????????????????????????????????????????????????? ???????????????????????????????????????????????? ???????????????????????????????????????????????? ???????????????????????????????????????????????????????????????????????????????? (Musgrave Rule) Conditional collective behaviour given macro demographic context choice (number points) x (value point) (actuarial corrections) (indexation growth) Number points <= career: justice Value ≈ f (average employed) Premised desirable sustainable replacement rate ‘standard worker’ ‘normal career’; career’ takes changes demography etc Flexibility: positive / corrections (career) social stratification entry healthy years Positive Indexation (growth real incomes) sustainability coefficient Two objectives Report: Target stabilisation pensioners/employed Stabilisation rates earned average Postponing ‘Alternative’ funding (tax shift) Differentiation according nature shocks (paper Devolder Hindriks Vandenbroucke) Changes longevity: conditional new retirees should not affected Other (baby-boom structural employment rate…) => (gross) (sustainability coefficient) Implementing à la ‘Musgrave rule’ implies further normative questions (relative level pensions/wages): what optimal allocation consumption cycle? Absolute wages &pensions (given productivity): leisure whole life? Resources Towards an equitable A Discussion Paper 2017 European Economy 3/2015 rule: Myles ‘A Contract Elderly’ Esping-Andersen Why we need Welfare State OUP 2002