Transcript Pension Reform and Labour Market Policies In Central Europe

Pension Reform and Labor
Market Policies In Central Europe
Elaine Fultz
Senior Specialist in Social Security
International Labor Organization
Budapest
Older population in Europe is
growing rapidly
• Over the past 50 years, average life
expectancy increase from 63 to 73.
• Is expected to rise to 80 by 2050.
2
Proportion of European population
60+ years
40
35
30
25
20
15
10
5
0
EU 15 + Iceland, Switzerland, Norway
New EU member States
South Eastern Europe and Mediterranean
Commonwealth of Independent States
Source: United Nations projections (2003), as cited in Managing transitions: Governance for decent work, Report of the
Director-General, Volume II, ILO: Geneva, 2005.
3
Proportion of European population
80+ years
12
10
8
6
4
2
0
EU 15 + Iceland, Switzerland, Norway
New EU member States
South Eastern Europe and Mediterranean
Commonwealth of Independent States
Source: United Nationas projections (2003), as cited in Managing transitions: Governance for decent work, Report of the
Director-General, Volume II, ILO: Geneva, 2005.
4
Labor Market Participation
No commensurate
increase
5
Life expectancy at age 60 and average exit
age from the labor force
Life expectancy at 60
males
females
Average exit age (both sexes)
Belgium
19.6
23.9
58.5
Denmark
19.1
22.4
60.9
Germany
19.8 a
23.9
Greece
20.1 b
23.1 b
59.4 a
Spain
20.3 c
24.9 c
61.5
France
20.6 a
25.7 a
58.8
Ireland
19.2
22.9
62.4
Italy
20.4 c
24.8 c
59.9
Luxembourg
19.6
24.2
59.3
Netherlands
19.5
23.5
62.2
Austria
20.2
24.1
59.3
Portugal
19.4
23.3
62.9
Finland
19.5
24
60.5
Sweden
20.9
24.3
63.2
United Kingdom
19.4 c
23 c
62.3
Norway
20.2
24
62.5
EU 15 + Norway
a
60.7
Source: EUROSTAT database, as cited in Managing transitions: Governance for decent work, Report of the Director-General,
Volume II, ILO: Geneva, 2005.
6
Life expectancy at age 60 and average exit
age from the labor force
Life expectancy at 60
males
females
Average exit age (both sexes)
Czech Republic
17.3
21.5
60.2
Estonia
15.4
21.3
61.6
Cyprus
19.5 d
22.7 d
61.4
Latvia
15.2
20.8
62.4 a
Lithuania
16.1
21.7
58.9 a
Hungary
16.1
20.9
59.2
Poland
17.1
22
56.9
Slovenia
18
23.1
61.5 a
Slovakia
16.4
21
57.5
Bulgaria
16.1
19.7
58.6
Romania
16.1
19.7
59.8 a
New EU Member States
SEE & Mediterranean
Source: EUROSTAT database, as cited in Managing transitions: Governance for decent work, Report of the Director-General,
Volume II, ILO: Geneva, 2005.
7
Total and older workers employment rates, 2002
80
70
60
50
40
30
20
10
0
Total
Older workers
Source: Eurostat (2004), as cited in Managing transitions: Governance for decent work, Report of the Director-General,
Volume II, ILO: Geneva, 2005.
8
Pension reforms in the later 1990s
• Increase retirement age
• Privatization – “Averting the Old Age
Crisis”
9
Retirement Ages – New EU States
Current law Men
Women
Czech
Rep.
1995, 2003
increasing to 63 by 2013 by
2 months/year
Increasing to 59-63
(depending on no. of children
raised) by 4 mos/yr in 2013
Estonia
1998, in force
2000
63
Increasing to 63 in 2016 by 6
months/year
Hungary
1996
increasing to 62 in 2001 by
1 year every second year
Increasing to 62 in 2009 by 1
year every second year
Latvia
1998
increasing to 62 in 2003 by
6 months/year
Increasing to 62 in 2008 by 6
months/year
Lithuania
1994, 2000
increasing to 62.5 in 2003
by 6 months/year
Increasing to 60 in 2006 by 6
months/year
Poland
1998
(in force,
1999)
65, with early retirement
eliminated beginning in
2007
60, with early retirement
eliminated beginning in 2007
Slovak
Rep.
2003
Gradual rise to age 62
Same as for men
Slovenia
1999
63
61
10
Mixed labor market response
• Due to –
– Early retirement options
– Difficult labor market situation
– Social/cultural factors
11
Pension privatization in the new
EU member states
Countries with mandatory, Countries without such
commercially managed
scheme
individual savings
accounts
Hungary (1998)
Czech Republic
Poland (1999)
Lithuania
Latvia (2001)
Slovenia
Estonia (2002)
Slovak Repub. (2003)
12
Early difficulties with privatization
• Small and undeveloped financial
markets
– the resulting high investment in government bonds
prevents risk diversification
• High administrative costs
– negative real returns on worker savings
• Transitional financing costs
– weakened the capacity of pension systems to meet
new demands from demographic aging
13
Transitional financing costs
- Poland 2.5%
2.0%
%
1.5%
GDP
1.0%
0.5%
0.0%
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
year
privatization revenues
credit
public pillar savings
Chlon, Agnieszka, "The Polish Pension Reform of 1999," in Fultz, E., Ed., Pension Reform in Central and Eastern Europe,
Vol. 1, ILO: Budapest, 2002.
14
More recent perspective
on how to deal with aging:
(1) Raise employment rates
– EU target: 70 percent for 2010
• 60 percent for women
• 50 percent for older workers
15
Employment rates in 2002
70
E U a ve ra g e (1 5 -6 4 )
60
50
E U a ve ra g e (5 5 -6 4 )
40
30
20
10
E m p lo ym e n t ra te (1 5 -6 4 )
M ace d o nia
Cro atia
Kazakhstan
Bulg aria
Po land
Hung ary
Latvia
Esto nia
0
E m p lo ym e n t ra te (5 5 -6 4 )
Chlon, Agnieszka, "Funded pensions in the transition economies of Europe and Central Asia: Design and Experience", FIAP, 2004.
16
2. Extend working life
• European Council (Barcelona) set target
for progressive increase of about 5 years
by 2010.
– Must take account of needs and rights of
older people, especially those with poor
working conditions, long working lives, and
health problems.
17
3. Pension reforms
• Needed to complement effort to increase
employment
• Eliminate or reduce incentives for early retirement
• Incentives to save more for own retirement
• Options for gradual retirement
– Other
– Address large, sustained transitional deficits from
privatization
– Reestablish minimum benefits
18
In Conclusion
• Challenges ahead are great
• No recipes or standard solutions
• Multidisciplinary approach required
19