International Pension Issues

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E M P L O Y E E   B E N E F I T S ,   C O M P E N S A T I O N
                  A N D   P E N S I O N   L A W
                 Vol. 2, No. 18: October 4, 2001
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                      Topic of This Issue:
                  International Pension Issues
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T A B L E of C O N T E N T S
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WORKING PAPERS

"Will it Last? An Assessment of the 2001 German Pension Reform"
     HOLGER BONIN
        Institute for the Study of Labor (IZA)
        University of Bonn

"Social Security Transition in Italy: Costs, Distortions and
(Some) Possible Corrections"
     PIER MARCO FERRARESI
        CeRP, Center for Research on Pensions and Welfare
        Policies
     ELSA FORNERO
        University of Turin
        Dipartimento di Economia
        CeRP, Center for Research on Pensions and Welfare
        Policies

"European Pensions and Global Finance: Continuity or
Convergence?"
     GORDON LESLIE CLARK
        University of Oxford
        School of Geography

"Social Security and Retirement in Japan"
     TAKASHI OSHIO
        Ritsumeikan University
        Department of Economics
     NAOHIRO YASHIRO
        Sophia University

"Policy Options and Issues in Reforming European Supplementary
Pension Systems"
     TRYGGVI THOR HERBERTSSON
        University of Iceland
        Institute of Economic Studies
     MICHAEL ORZSAG
        University of London, Birkbeck College
        Department of Economics

"The Maturation of Canada's Retirement Income System: Income
Levels, Income Inequality and Low Income Among the Elderly"
     JOHN MYLES
        Florida State University
        Statistics Canada

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W O R K I N G P A P E R Abstracts
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"Will it Last? An Assessment of the 2001 German Pension Reform"

      BY: HOLGER BONIN
              Institute for the Study of Labor (IZA)
              University of Bonn

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=281405

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           http://www.iza.org/publications/dps/dp343.pdf
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Paper ID: IZA Discussion Paper No. 343
Date: August 2001

Contact: HOLGER BONIN
   Email: Mailto:bonin@iza.org
Postal: Institute for the Study of Labor (IZA)
           P.O. Box 7240
           D-53072 Bonn,   GERMANY

Paper Requests:
Contact: Mark Fallak, Institute for the Study of Labor (IZA),
P.O. Box 7240, D-53072 Bonn, Germany. Phone:+49-228-3894-0 ext.
223. Fax:+ 49-228-3894-510. Mailto:Fallak@iza.org

ABSTRACT:
In May 2001, Germany adopted a fundamental pension reform
cutting back public pensions and introducing personal pension
accounts. The paper critically reviews the reform decisions and
evaluates their long-term viability. It is shown that the
adjustment of the Public Pension Scheme misses the proclaimed
contribution rate and replacement ratio targets already under
moderate economic conditions. However, the new private pension
plans provide scope for further downsizing state pensions,
necessary beyond 2025. As the enacted savings rate target is
conservative, individual pensions keep retirement income
sufficient even if returns to pension funds are low due to legal
restrictions on savings vehicles.

Keywords: Pension Reform, Pension Funding, Fiscal Projections,
Germany

JEL Classification: F22, E66
______________________________

"Social Security Transition in Italy: Costs, Distortions and
(Some) Possible Corrections"

      BY: PIER MARCO FERRARESI
              CeRP, Center for Research on Pensions and Welfare
              Policies
           ELSA FORNERO
              University of Turin
              Dipartimento di Economia
              CeRP, Center for Research on Pensions and Welfare
              Policies

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=264994

Paper ID: CERP Center for Research on Pensions & Welfare
Policies Working Paper No. 2/00

Contact: PIER MARCO FERRARESI
   Email: Mailto:ferraresi@econ.unito.it
Postal: CeRP, Center for Research on Pensions and Welfare Policies
           Via Real Collegio, 30
           Moncalieri, Turin 10024   ITALY
Co-Auth: ELSA FORNERO
   Email: Mailto:Elsa.Fornero@unito.it
Postal: University of Turin
           Dipartimento di Economia
           Corso Unione Sovietica 218b
           10124 Torino,    ITALY

ABSTRACT:
This paper focuses on alternative money's worth measures of the
Italian (public) pension system for representative cohorts,
considering both the present transition and the future steady
state envisaged by recent reforms. Micro-based calculations of
the aggregate budget effects induced by further possible policy
changes are also presented. The main results of the simulation
exercise are: i) young and future generations face a steady and
strong reduction of their social security's worth mainly due to
the 1992 and 1995 reforms and accentuated by the discontinuities
characterizing the reforms; ii) throughout most of the
transition period, the increase in benefits for an additional
year of work, after reaching seniority pension requirement, does
not offset the financial costs generated by additional
contributions and shorter expected retirement. The implied loss
still represents a strong incentive to early retirement; iii)
the extension, from the year 2000, of the pro rata mechanism to
all new pensioners would generate a non-negligible smoothing
effect on microeconomic distortions, but a comparatively small
reduction in pension expenditure; iv) a much larger reduction
can be obtained if seniority pensions are determined according
to actuarial fairness: i.e., by taking into account life
expectancy at retirement; v) considering the introduction of an
opting out clause, all generations hit by recent reforms have an
incentive to quit; the younger the cohort, the stronger the
incentive. The paper finally highlights aspects of the social
security problem which deserve to be addressed in a more
complete analysis, such as risk adjustments, welfare
implications and general equilibrium feedback effects. Even
without these extensions, we think our conclusions are quite
robust, and may help policy discussion.

JEL Classification: H55, J26, E27
______________________________

"European Pensions and Global Finance: Continuity or
Convergence?"

      BY: GORDON LESLIE CLARK
              University of Oxford
              School of Geography

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=257753

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Paper ID: Working Paper No. 01-02
Date: January 2001

Contact: GORDON LESLIE CLARK
   Email: Mailto:gordon.clark@geog.ox.ac.uk
Postal: University of Oxford
           School of Geography
           Mansfield Road
           Oxford OX1 3TB,    UK
   Phone: +44 1865 271930
     Fax: +44 1865 271940

ABSTRACT:
The retirement of the baby boom generation is a profound threat
to the structure and organisation of continental European
retirement systems. Whereas the German financial system, for
example, has been often favourably compared to the
Anglo-American system of corporate governance, it is argued in
some quarters that it will have to become far more "American" if
current living standards are to be maintained. The paper begins
by suggesting that these issues should be taken seriously by
economic geographers; we have a distinctive perspective that
should not be lost in the more general debate. Subsequently, the
paper focuses on three threads or themes. Why the demographic
crisis is a crisis not just a transition; why global finance is
deeply implicated in any European solution to the demographic
crisis, and; whether continental European countries will be able
to maintain their inherited retirement income systems in the
face of competition from the Anglo-American model. Unfunded
social security benefits threaten the economic welfare of all
citizens; those that will be retired and those that will
continue working over the next 20 to 30 years. Proffered
solutions tend to rely upon the market rather than the state,
and tend to match or mimic Anglo-American financial practices.
This does not mean that continental Europe need converge upon
the Anglo-American system of finance and retirement income
provision. But it does seem highly likely that continental
European countries will seek solutions that draw upon aspects of
this system. Rather than thinking of convergence to the
Anglo-American model as the most likely outcome, and rather than
thinking of continuity of difference between systems as a viable
scenario, European countries will in some way or another be
forced to seek accommodation with global finance. Whether
continental Europe will be able to hold global finance at bay
remains to be seen. Global finance may penetrate national
economic and social systems far deeper than ever intended.

JEL Classification: G18, G23, G28
______________________________

"Social Security and Retirement in Japan"

      BY: TAKASHI OSHIO
              Ritsumeikan University
              Department of Economics
           NAOHIRO YASHIRO
              Sophia University

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=225919

Paper ID: NBER Working Paper No. W6156
Date: September 1997

Contact: TAKASHI OSHIO
   Email: Mailto:tot00885@ritsumei.ac.jp
Postal: Ritsumeikan University
           Department of Economics
           56-1 Tojiin-Kitamachi
           Kita, Kyoto 603,    JAPAN
Co-Auth: NAOHIRO YASHIRO
   Email: Mailto:yashiro@sophia.ac.jp
Postal: Sophia University
           Institute of International Relations
           7-1 Kioicho, Chiyodaku
           Tokyo,   JAPAN 102

Paper Requests:
Full-Text downloads are available from SSRN Online for $5.

ABSTRACT:
We provide the incentive mechanism of the public pension on the
retirement decisions made in the Japanese labor market. Though
the labor market participation of Japanese older persons is
quite high by international standards, a principle incentive
mechanism of the public pension system in Japan affecting the
retirement behavior has many things in common with those in
other OECD countries. The pension benefits are designed
"actuarially unfair", and the decision to work beyond age 60 is
penalized. As the population ages quite rapidly, it is wasteful
to maintain the disincentive mechanism arising from the
actuarially unfair pension scheme for older persons.

______________________________

"Policy Options and Issues in Reforming European Supplementary
Pension Systems"

      BY: TRYGGVI THOR HERBERTSSON
              University of Iceland
              Institute of Economic Studies
           MICHAEL ORZSAG
              University of London, Birkbeck College
              Department of Economics

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=276248

Contact: TRYGGVI THOR HERBERTSSON
   Email: Mailto:tthh@rhi.hi.is
Postal: University of Iceland
           Institute of Economic Studies
           Aragata 14
           IS-101 Reykjavik,   ICELAND
   Phone: +354 525 4535
     Fax: +354 552 6806
Co-Auth: MICHAEL ORZSAG
   Email: Mailto:jmo@ricardo.econ.bbk.ac.uk
Postal: University of London, Birkbeck College
           Department of Economics
           7-15 Gresse Street
           London W1P 2LL,   UK

ABSTRACT:
Most industrialized countries are struggling with reforming
their retirement income systems. The systems have mainly been
based on public pay-as-you-go plans but as the systems have
become mature they have increased the fiscal burden of nations
and become an inadequate device for financial insurance for the
old. Consequently, almost all the European countries will need
either to prefund their retirement liabilities or reform their
retirement systems to reduce or restrict benefits. There is
already a significant volume of supplementary pensions in
Europe; about 25 per cent of the labor force is covered and more
than 2 trillion ECU of funds are under management. The proposed
EU occupational pensions directive provides a framework for the
growth of some of these supplementary pensions in EU Member
States. This paper identifies and discusses ten important
economic issues in the design and implementation of
supplementary pensions systems.

Keywords: Pension reforms, supplementary pensions, Europe

JEL Classification: G23, E61, H31, H55
______________________________

"The Maturation of Canada's Retirement Income System: Income
Levels, Income Inequality and Low Income Among the Elderly"

      BY: JOHN MYLES
              Florida State University
              Statistics Canada

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=229486

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           http://www.statcan.ca/english/services/iresrc.htm
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Paper ID: Statistics Canada Working Paper No. 147
Date: March 2000

Contact: Valerie Thibault
   Email: Mailto:thibaul@statcan.ca
Postal: Statistics Canada
           Analytical Studies Branch
           120 Parkdale Avenue
           24th Floor, R. H. Coats Building
           Ottawa, Ontario K1A 0T6   CANADA
   Phone: 613-951-1804
     Fax: 613-951-5403

Paper Requests:
Contact StatCan, Publications Review Committee, Analytical
Studies Branch, 24th Floor, R.H. Coats Building, 120 Parkdale
Ave., Tunney's Pasture, Ottawa, Ontario K1A 0T6 Canada. Phone:
(613)951-6325 Fax:(613)951-5403 $5 per publication.

ABSTRACT:
This paper revisits trends in the level and distribution of
income among Canadian seniors in is arguably the major source of
change in these trends since the end of the seventies, the
maturation of Canada's public and private earnings-related
pension systems. The expanded role of earnings-related pensions
in the 1980s and 1990s is largely the result of changes that
occurred in the 1950s and 1960s. The Canada and Quebec Pension
Plans (C/QPP) were implemented in 1966 and the first cohort to
receive full C/QPP benefits turned 65 in 1976. Cohorts retiring
after this period were also the beneficiaries of the expansion
of private occupational pensions that took place between the
1950s and the 1970s. The author relies on a detailed composition
of income by source to show that not only did the maturation of
these earnings-related programs produce a substantial increase
in average real incomes but also to a substantial reduction in
income inequality among the elderly, due mainly to C/QPP
benefits. Rising real incomes went disproportionately to lower
income seniors contributing to the well-known decline in
low-income rates among the elderly.