Welfare Reform on the Web (March 2000): Pensions - Overseas

DUTCH PENSION POLICY AND THE AGEING OF THE POPULATION

W. Van Oorschot and C. Boos

European Journal of Social Security, vol. 1, 1999, p. 295-311

Article describes the reform of the Dutch pension system in the light of the ageing of the population. Two measures have been taken to reform the Dutch state pension. Firstly, the contribution rate was set at a maximum of 16.5% to prevent an uncontrollable growth in contributions paid by employees. Any extra money needed to fund pensions will be provided annually by the government. Secondly, a Savings Fund was established to which the government will donate a specified amount of money each year for the next two decades. This will help pay for the peak of pension costs expected to occur after 2020.

THE FUTURE OF PENSIONS IN EUROPE

M. Boldrin et al

Economic Policy, no. 29, 1999, p. 287-320

Argue that structural reforms that reduce equilibrium unemployment and further encourage labour force participation by women, could raise the contribution base sufficiently to enable pay-as-you-go pension schemes to withstand adverse demographic trends for many years to come. If necessary, this could be reinforced by having pensions rise in line with prices rather than earnings. The authors view pay-as-you-go pensions as part of an intergenerational contract through which the education of the young is financial by middle-aged workers in return for financing of their own old-age consumption.

PENSIONS WILL SQUEEZE EUROPEAN BUDGETS

D. Hargreaves

Financial Times, Nov. 23rd 1999, p. 11

Outlines the impact of the ageing population on unfunded state pension liabilities in Germany, France and Italy. Governments will be forced either to renege on their generous promises made in the past or significantly raise workers' contributions.

RISK SHARING AND TRANSITION COSTS IN THE REFORM OF PENSION SYSTEMS IN EUROPE

D. Miles and A. Timmermann

Economic Policy, no. 29, 1999, p. 251-286

Unfunded pay-as-you go pension schemes are financially unsustainable in Europe as elsewhere. Proponents of reform argue that, by switching to a fully funded scheme that takes advantage of high returns on investments, the solvency of state schemes could be restored at little or no cost to current taxpayers. This argument is mistaken for two reasons. Firstly, making the transition is itself costly. Unless this cost is substantially financed by government debt, it will fall on current generations, who are therefore likely to oppose the reform. Secondly, higher returns on investments are accompanied by significantly higher risk. Authors explain how an appropriate insurance scheme could be designed to mitigate the risk and safeguard retirement incomes.

WARNING OF PENSIONS 'TIME BOMB'

D. Hargreaves

Financial Times, Nov. 17th 1999, p. 10

Reports an appeal by Europe's businessmen to the European Union and national government's to urgently address the reform of public pensions schemes. The appeal seeks changes to EU rules that would allow workers to transfer pensions across borders, co-ordinate the tax and regulatory treatment of pensions and allow pension funds to invest in foreign markets.