In the Wake of the Crisis: Pension Reforms in Eight European Countries
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Karl Hinrichs In the Wake of the Crisis: Pension Reforms in Eight European Countries ZeS-Working Paper No. 01/2015
WORKING PAPERS Zentrum für Sozialpolitik Universität Bremen Postfach 33 04 40 28334 Bremen Phone: 0421 / 218-58500 Fax: 0421 / 218-58622 E-mail: srose@uni-bremen.de Editor: Kristin Bothur http://www.zes.uni-bremen.de Design: cappovision, Frau Wild ZeS-Arbeitspapiere ISSN 1436-7203 2
Karl Hinrichs In the Wake of the Crisis: Pension Reforms in Eight European Countries ZeS-Working Paper No. 01/2015 Prof. Dr. Karl Hinrichs University of Bremen Centre for Social Policy Research (ZeS) karl.hinrichs@uni-bremen.de 3
summary The 2008 financial market crisis, followed by the Great Recession and sovereign debt crises in several EU coun- tries have triggered drastic reforms of old-age security systems. They were supposed to ensure the financial vi- ability of public pension schemes in the short and long run and/or to realize notions of intergenerational fair- ness. Most urgently, however, was regaining room for fis- cal manoeuvre and obtaining financial aid from suprana- tional organizations (such as IMF or EU). These pension reforms differ from previous changes with regard to their scope and the political process. (1) They were large, thus causing a substantial and immediate impact on the liv- ing conditions of present and future retirees and, some- times, changed the hitherto pursued policy direction. (2) The post-2008 reforms swiftly passed the legislative pro- cess and were implemented at short notice. Hence, they can be considered as “rapid policy changes”. This paper analyses pension reforms in eight crisis-shaken EU coun- tries: Greece, Hungary, Ireland, Italy, Latvia, Portugal, Romania, and Spain. It explores both reform contents and circumstances which led to the respective changes or fa- cilitated them. As is shown, the challenges, which those countries were (or still are) confronted with, allowed or enforced alterations that would not have been feasible otherwise, or which would rather not have been initiated by the respective governments with regard to the politi- cal consequences. Moreover, cross-national comparison reveals similarities and differences and also sheds light on the social consequences that are already visible today. 4 WORKING PAPERS 01 / 2015
zusammenfassung Die Finanzmarktkrise von 2008 und in deren Gefolge die Große Rezession sowie Staatsschuldenkrisen in verschie- denen EU-Ländern haben einschneidende Reformen der Alterssicherungssysteme ausgelöst, welche die Finanzie- rung der Renten kurz- und langfristig sicherstellen und/ oder Vorstellungen von Generationengerechtigkeit reali- sieren sollen. Dringlicher war es jedoch, den fiskalischen Manövrierspielraum wieder zu erweitern und Kredithilfen von internationalen Geldgebern (IWF, EU) zu erlangen. Diese Rentenreformen unterschieden sich von früheren im Hinblick auf den Umfang und den politischen Prozess. (1) Sie waren groß, zeitigten demzufolge eine signifikan- te und unmittelbare Wirkung auf die Lebensbedingungen der jetzigen und künftigen Rentenbezieher, und manch- mal wurde auch die bis dahin verfolgte Politikausrich- tung verändert. (2) Die nach 2008 erfolgten Reformen passierten rasch den Gesetzgebungsprozess und wurden ohne lange Übergangsfristen umgesetzt. In diesem Pa- pier werden die Rentenreformen in acht krisengeschüt- telten EU-Ländern betrachtet, nämlich Griechenland, Irland, Italien, Lettland, Portugal, Rumänien, Spanien und Ungarn. Dabei geht es um die Inhalte dieser Refor- men und die Umstände, die jeweils zu diesen Verände- rungen geführt bzw. sie ermöglicht haben. Gezeigt wird, dass die Herausforderungen, mit denen diese Länder konfrontiert waren (oder sind), einschneidende Verände- rungen erlaubten bzw. erzwangen, die ansonsten kaum durchsetzbar gewesen oder in Anbetracht der politischen Konsequenzen von den jeweiligen Regierungen so nicht in Angriff genommen worden wären. Weiterhin werden im Ländervergleich die Gemeinsamkeiten und Unterschiede beleuchtet sowie nach den bislang erkennbaren sozialen Konsequenzen gefragt. 5
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content 1. Introduction 8 2. Eight Countries – Three Types of Pension Systems 10 3. The Post-2008 Pension Reforms 12 3.1 Ireland 12 3.2 The South European Countries 13 3.3 The CEE Countries 19 4. Commonalities and Differences 22 5. The Social Impact of Recent Pension Reforms 24 6. Conclusion 26 7. References 28 7
1. Introduction* The 1990s and early 2000s have shown became a primary target for spending that in democratic polities, reforms of cuts because, almost everywhere, they pension systems – parametric (path-de- are by far the largest item of welfare state pendent) as well as systemic (path-de- budgets (Table 1, rows 7 and 8). parting) changes – turned out to be not Second, the political process that as impracticable as research on the “new brought about these changes deviated politics of the welfare state” had suggest- from previous attempts to retrench, re- ed (Pierson 1994; 2001). No longer being finance or recalibrate old-age security expansionary, they came about when in- systems. Although governments tried to cumbent governments were able to shift avoid a unilateral approach, there was or share the blame for enacted retrench- no lengthy process of consensus-seeking ments, to hide the true impact of changes, and compromise-building. Rather, the or when they expected to reap credit for post-2008 reforms in the crisis-shaken amendments that put pension systems on EU countries swiftly passed the legisla- a more sustainable footing in view of ad- tive process and were (or will be) im- vancing population aging (Galasso 2010; plemented with no or short transitional Hinrichs 2011). After 2008, however, in period. Hence, they can be considered the wake of the Great Recession in a num- as “rapid policy changes” (Rüb 2012). ber of European countries being plagued Mainly, this new reform pattern sprang with high budget deficits and mounting from the pressure exerted by financial sovereign debt, pension policy alterations markets and supranational actors (IMF, came to the fore that were different in two European Commission), limiting policy aspects. First, their magnitude was large, space for domestic actors. These exter- particularly when the sequel of changes nal constraints urged governments to ne- is added up. Sometimes even the hith- glect vote-seeking objectives within the erto pursued policy direction was moved, well-known credit-claiming/blame-avoid- and the reforms cause a substantial and ance framework for the sake of attaining immediate negative impact on the living short-term savings on public expenditure conditions of present and future retirees. (Bonoli 2012). Consequently, in a number In a situation where austerity is no longer of countries politicians, who tried to cut simply ‘permanent’ but rather ‘pervasive’, back on pension expenditure, were pun- it is hardly surprising that public pensions ished and lost power during subsequent elections because voters rarely appreci- ated cuts designated to overcome a ‘major * Revised version of a paper prepared for pres- entation at the XVIII ISA World Congress of crisis situation’. Sociology, Research Committee 19, Session 339 (“Social Policy and the Crisis”), Yoko- hama (Japan), 13-19 July 2014. 8 WORKING PAPERS 01 / 2015
In this contribution, eight countries tention will also be given to the circum- will be analyzed – four from Southern Eu- stances which led to respective changes. rope (Greece, Italy, Portugal, and Spain), It will be shown that the challenges these three Central and Eastern European (CEE) countries were (are) confronted with, states (Hungary, Latvia, and Romania) enforced or facilitated profound reforms and Ireland. All of them have conducted which would otherwise have not been pension reforms after 2008 in order to en- practicable or, in view of the political con- sure their public schemes’ financial viabil- sequences, not been initiated by respec- ity in the short and long term or to realize tive governments.2 Moreover, it will be notions of intergenerational equity. Most briefly touched upon the social and politi- urgently, however, these countries have cal consequences of the implemented pol- sought to regain room for fiscal maneuver icy changes. An evaluation of the social and to obtain financial aid from suprana- outcomes, however, is limited because tional organizations (IMF, EU). Seven of not everywhere has the reform process the eight countries had to seek such aid already come to an end yet and the ac- in the wake of the financial market crisis tions which were taken have not brought (2007/08), which triggered an economic to bear their full effects. slump and, as one immediate outcome thereof, a sovereign debt crisis. The causal relevance of these events for the post-2008 reforms can be read off from concrete recommendations issued by the European Commission or detailed reform demands attached to bailout agreements (‘memoranda of understanding’). Intensi- fied reform efforts of deeply indebted Italy were mainly driven by the rising spread publications of the European Commission over German government bonds’ interest (2010 [Annex 6], 2012b, 2012c: 23-40) and the rate, as well meaning hard external pres- OECD (2012a, 2013b, 2014: 52-81). sure that shaped domestic policy-making 2 The (‘normal’) politics of pension reform that (Jessoula 2012: 24-5; de la Porte/Natali prevailed during the two decades prior to 2009 has been studied in detail for individual 2014). countries as well as in comparison (see In the following, the content of pen- e.g. Myles/Pierson 2001; Bonoli/Shinkawa sion reforms will be delineated1, but at- 2005; Schludi 2005; Immergut et al. 2007; Natali 2008). Due to limited space, such fine- If not indicated otherwise, information on 1 grained analysis of recent reforms in eight the contents of reforms was obtained from countries that takes into account the involved the International Updates of the US Social actors, their interests, and the political-insti- Security Administration (http://www.ssa.gov/ tutional conditions cannot be presented here. policy/index.html), the country reports of the For the same reason, austerity measures in project Analytical Support on the Socio-Eco- other policy domains (e.g. health care, taxa- nomic Impact of Social Protection Reforms tion, public sector employment/wages) will (ASISP) (http://www.socialprotection.eu) and be ignored. 9
2. Eight Countries – Three Types of Pension Systems The eight European countries belong to along occupational lines – most strongly different welfare-state regimes. Ireland is in Greece, least in Spain and Portugal – representing the (Anglo-Saxon) 'liberal' for which reason benefit generosity var- cluster, whereas Greece, Italy, Portugal ied. Despite being ‘rudimentary’ welfare and Spain belong to the conservative- states, the social expenditure ratio is corporatist type. Occasionally, they are comparatively high but, because old- said to form a specific 'Southern Model'. age security constitutes the central pil- According to Ferrera (1996), these wel- lar of their social policy arrangements, fare states show a ‘clientelistic’ structure the structure of expenditure is strongly (privileging the labor force in certain oc- ‘age-biased’ (much more than in Ireland cupations and economic sectors) and re- – Table 1, rows 7 and 8). This imbalance main ‘rudimentary’ because, among oth- has even grown in recent years. Causes ers, family and labor market policies are are the hitherto very generous pension still underdeveloped. Hungary, Latvia and payments (at least for insiders), the broad Romania and further CEE countries be- access to early retirement (discernible in long to the 'post-socialist' cluster which, the low employment rates among those due to these countries’ diverse welfare 55-64 years of age), and the already high state designs, is hardly coherent enough and further increasing longevity (Table 1, to speak of an (emerging) 'Eastern Model' rows 2, 3, 5, 9 and 10). (Hacker 2009). Originally, CEE countries had fol- There is a certain arrangement of lowed the Bismarck model, and certain old-age security attached to the different elements remained intact during commu- welfare state types. Ireland (like the UK) nist rule. The social insurance approach has followed the Beveridge model, i.e. was revitalized after 1990, before Hun- state responsibility is limited to universal gary (1998), Latvia (2001) and Romania basic old-age security, while status main- (2007) turned to a multi-pillar pension tenance is left to (state-regulated) private system as propagated by the World Bank.3 provision by employers and individuals. They established an additional second pil- In Southern Europe, social insurance lar that was private, but mandatory for schemes of the Bismarck type play a piv- It would have been quite possible to include 3 otal role. Access to and the level of public further CEE countries in the comparison, for pensions depends on prior earnings-relat- example Poland or Estonia whose retirement ed contributions. The accruing benefits income system came close to the one in Latvia. They concluded similar reforms after are meant to ensure status maintenance. 2008. – On the pre-2008 pension reforms in Before the recent reforms, however, the CEE countries see contributions in Cerami/ schemes were institutionally fragmented Vanhuysse (2008). 10 WORKING PAPERS 01 / 2015
Table 1: Pension-relevant indicators IE GR IT PT ES LV HU RO 1 employment rate 15-64 (2007) 69.2 60.9 58.7 67.6 65.8 68.1 57.3 58.8 ditto (2012) 58.8 50.8 56.8 61.4 55.8 63.0 57.2 59.5 2 ditto 55-64 (2012) 49.3 36.5 40.4 46.5 43.9 52.8 36.9 41.4 3 old age ratio (≥ 65 / 20-64) (2010) 19 31 33 29 27 28 27 23 projection 2050 44 63 61 61 62 59 55 59 4 contributors per pensioner (2010) 2.78 1.77 1.47 1.59 2.40 1.52 1.31 0.95 projection 2050 1.91 1.29 1.30 0.90 1.28 1.04 1.00 0.76 5 further life expectancy after reaching age 65 (2012): males 18.0 18.1 18.8 17.6 18.6 13.6 14.3 14.6 females 21.1 21.0 22.6 21.3 22.8 18.5 18.1 17.7 6 Change of GDP in year 2009 in % -7.0 -3.3 -5.5 -2.9 -3.7 -17.7 -6.8 -6.6 7 social expenditure/GDP (2007) 18.3 24.8 26.6 23.9 20.8 11.3 22.7 13.6 (2011) 29.6 30.2 29.7 26.5 26.1 15.1 23.0 16.3 8 public pension expenditure in % of GDP (2007) 4.0 11.7 14.0 11.4 8.4 5.4 10.9 6.6 (2010) 7.5 13.6 15.3 12.5 10.1 9.7 11.9 9.8 projection 2050 11.4 15.4 15.7 13.1 14.0 6.4 13.5 12.8 9 gross average replacement rate (public pensions) (2010) 37.3 59.3 79.5 56.9 72.4 48.2 38.4 41.6 projection 2050 38.0 52.4 66.0 48.2 56.6 15.8 40.3 29.8 10 net theoretical replacement rate (2010) 85.8 121.3 89.5 85.8 94.5 80.4 100.1 70.7 projection 2050 69.0 87.0 69.1 65.9 86.5 55.3 75.0 45.0 11 targeted benefits in old age in % of average earnings 34.9 13.7 21.6 17.4 19.6 -- minimum public pension in % of average earnings -- 36.4 19.3 33.8 33.9 12.4 12 at-risk-of-poverty rate ≥ 65 (2012) 11.0 17.2 16.3 17.4 14.8 13.9 6.0 15.4 ditto 18-64 years 15.1 23.8 18.6 16.9 21.9 19.3 13.6 21.0 13 home ownership rate ≥ 65 (2010) 88.6 84.9 80.4 73.3 88.5 85.4 90.3 100 Sources: rows 1, 2, 5, 6, 7, 12 and 13 = Eurostat Statistical Database (and own calculations); rows 3, 4, 8 (2007 figures: European Commission 2009: 200) and 9 = European Commission 2012a (country fiches); row 10 = European Commission 2012b (country profiles); row 11 = OECD 2013b: 123. the younger part of the work force. While mainly motivated by the advancing demo- the total contribution rate remained un- graphic shift showing up in an increas- changed, the share allocated to the pay- ing old-age dependency ratio or a dete- as-you-go first-pillar scheme was reduced riorating system dependency ratio (Table (and also the accruing pension level). 1, rows 3 and 4), the latter (contributors The remaining part was transferred into per pensioner) being more relevant for the second pillar and invested in private the financing of old-age security systems. pension funds. This systemic change was Both developments are the result of rising expected to deliver a higher total benefit longevity and declined birth rates. At least level and to further domestic capital mar- since the 1990s, the OECD, the European ket development. Commission (EC) and the International The pre-2008 reforms in the CEE Monetary Fund (IMF) have purveyed the states and other European countries were conviction that high social security contri- 11
butions and taxes have a negative effect which increasing spending (as a result of on employment levels, thereby support- demographic change) can be contained. ing national actors in their policy efforts The ratio between pensioners and con- to keep in check the tax and contribution tributors may be changed by lifting the burdens. Thus, when the contributions of pensionable age, and it is possible to low- employers and employees to state pen- er the level of newly awarded pensions by sions are supposed not to rise (much) modifying the rules of benefit calculation and if no (higher) tax-financed payments or to change the way in which pensions in are to be transferred to pension schemes, payment are indexed. only a limited number of levers remain by 3. The Post-2008 Pension Reforms 3.1 Ireland Ireland’s basic state pension is contribu- The financial market crisis has se- tion-financed and flat-rate (but means- verely hit the assets of the NPRF and oc- tested for about twenty percent of retirees cupational pension funds. In 2011, still without a complete contribution record). eighty percent of the defined-benefit (DB) For a single person, the level amounts to plans were in deficit (OECD 2013a: 53). about 37 percent of average wages. Dur- The funding gap has to be removed until ing the 2000s, benefit increases in real 2016 and private pension funds will have terms significantly reduced the risk of to make up for a risk reserve from then old-age poverty – from 44 percent in 2001 on. From 2011 to 2014, they are obligated to 10.6 percent in 2010. Over the last to compound a special levy of 0.6 percent two decades, occupational pension plans (p.a.) on accumulated assets and an ad- constantly covered about one half of the ditional levy of 0.15 percent in 2014 and employees. In 2001, a National Pension 2015. The larger part of the (shrunken) Reserve Fund (NPRF) was established NPRF assets has been used to bail out and in order to ease the financing of the ba- recapitalize the banking sector. Before, sic state pension and the occupational the government had already stalled the scheme for public service workers after payments into the NPRF, because it had 2025 when population aging will acceler- to cover growing deficits of the social in- ate. Every year the government has paid surance fund with tax money when fewer one percent of GDP into the NPRF. people were gainfully employed and paid 12 WORKING PAPERS 01 / 2015
contributions (Table 1, row 1). Consider- to modernize, eventually leading to crisis, able savings for the exchequer stem from was identified (Katrougalos 1996; Venieris changes of the DB-type public service 1996). These problems became manifest pension schemes (Table 2): Pensions in when the size of the Greek economy con- payment above a certain threshold have tracted by 23.5 percent in real terms be- been cut in a progressive manner; the ac- tween 2007 and 2012 (Matsaganis 2013: crual of entitlements is capped at forty 3) and the employment rate declined by years of service; newly awarded pensions ten percentage points during the same turn out to be lower due to pay cuts; pub- period (Table 1, row 1). lic service workers have to pay higher Drastic pension reforms came about contributions without earning higher enti- only in 2010 and thereafter due to obli- tlements; newly recruited public servants gations related to the bailouts (Nektarios have to reckon with more unfavorable 2012; OECD 2013d: 115-20). A signifi- rules for calculating and adjusting their cant structural reform of the extremely (future) pensions (OECD 2013a: 41-3). complex Greek old-age pension system – These changes were components of the consisting of a mandatory income-related austerity package agreed with the 'Troika' general scheme and a (largely) compulso- which also included the gradual increase ry supplementary component (also earn- of the state pension age from 66 to 68 (leg- ings-related) – started in 2008, however. islated in 2011) and tightened contributory The merger of occupationally differenti- requirements. Already since 2009, there ated schemes and standardized rules are has been no adjustment of the basic state supposed to bring about greater transpar- pension, still remaining at 230.30 Euro per ency, fairness and, additionally, lower ad- week for a single beneficiary. ministrative costs. From 2012 on, all sup- plementary pension schemes have been brought together into a single pension 3.2 The South European fund. However, these reforms – aiming Countries at a more harmonized, rationalized and, hence, equitable pension system – have Greece is clearly the straggler among the not been fully implemented yet. Moreover, Southern European countries with regard effectively collecting due contributions is to social policy reforms in general and the still hampered by deficient administrative adaptation of old-age pension systems capacities and the significant incidence of to changed economic and demographic undeclared work (Koutsogeorgopoulou et circumstances in particular. As early as al. 2014: 33-5). in the 1990s, there had been complaints Strictly following the lenders’ detailed about the ineffectiveness and inefficiency demands for change, in 2010 the Greek of the Greek welfare state and disparate Parliament decided to lower the accrual benefit levels – with public employees rate, most decisive for the replacement ra- and some groups of professionals benefit- tio in a defined-benefit scheme, from two ing disproportionately – and an inability to three percent to 0.8 to 1.5 percent for 13
14 Table 2: Synopsis of pension reform elements, concluded 2008 and later Normal retirement age Early retirement Benefit formula Indexation Harmonization Miscellaneous IE 66 → 67 (2021) → 68 ‘transitional state public service pensions: state pensions increasing NRA cuts of public service (2028) pension’ at age 65 career average frozen at 2009 also applies to pensions; state pension abolished in 2014 earnings for newly level (230.30 € public sector contributions levied without recruited employees per week) workers income ceiling and minimum threshold GR F: 60 → 65 (2011/13); after 40 contribution accrual rate lowered: suspended until number of general further adjustments if pen- M/F: 65 → 67 (2012/13); years: age 60 (2011) 2 to 3 % → 0.8 to 1.5 end of assistance and supplementary sion spending would 2021ff. NRA linked to → 62 (2013); %; calculation base: program; 2015ff.: schemes reduced; increase by more than 2.5 WORKING PAPERS 01 / 2015 further life expectancy number of arduous best 5 out of last 10 not higher than public sector wor- percentage points between professions reduced years → entire career CPI kers integrated in 2009 and 2060; progressive to < 10 % of general scheme solidarity tax on higher workforce pensions IT F: 60 → 65 (2018); F years of contribu- NDC rules apply to suspended for rules of the age-specific divisors for public sector: 61 → 65 tions required for all future pensioners pensions > 1,400 € separated schemes converting notional ‘assets’ (2010/11); public sector seniority pensions (pro rata); minimum in 2012 + 2013; further aligned into a stream of benefits (due (M/F): 65 → 66 indexed to changes contributory period 2014: benefits < 3 to risen life expectancy) (2011/12); 2013ff. NRA in life expectancy for NDC pension: × minimum adjusted for the first time in linked to life expectancy 2013ff. 5 → 20 years pension higher 2013 (forecast: (2019/21: ~ 67; adjustment 2050: ~ 70) ES 2013/27: 65 → 67; voluntary ER: 63 full pension: no CPI adjustment special schemes sustainability factor: rising still 65: 35 → 38.5 years of → 65 and 33 → 35 35 → 37 contribution in 2012/13/14 for civil servants, life expectancy affects contributions insurance years; years (50 % after 15); (small arbitrary farm workers + self- calculation of newly awarded involuntary ER calculation base: last increases instead); employed abolished pensions as of 2019 (instead (unemployed) 61 → 15 → 25 insurance 2015ff.: annual of 2027); reserve fund mel- 63 and 31 → 33 years; 2019ff.: rising changes deter- ting off (used for pension (decrements about longevity influences mined by sustaina- payments) 7.5 % p.a.) initial benefit level bility factor
PT 65 → 66 (2013/14); after no ret. before 65 for whole insurance no adjustment in special schemes special solidarity contribution it: adjusted according to employed workers career, but best 40 2011; 2012: CPI (public sector, on higher pensions (2011) sustainability factor until 2014; 62 if years for full pension only for lower banking, telecom) replaced with ‘sustainability unemployed after 57 pensions phase out contribution’ (2015) HU 62 → 65 (2014/22) = age F: any age after 40 benefit calculation Swiss index → elimination of 13th monthly 65 valid for birth cohorts insurance years (incl. changed: ~ -8.5 % for CPI adjustment pension payment (2009); 1957ff. child care periods) newly awarded since 2012 mandatory 2nd pillar since 2011; all other pensions cancelled + assets shifted to ER options eliminated state budget; no ceiling on (2012) employees’ share of contributions (2013) RO M: 63 → 65 (2015) 5 years before NRA full pension: 33/28 → no indexation 2010 special schemes for 2nd pillar contribution rate: F: 58 → 60 (2015) → 63 with temporary 35 insurance years for – 2012; 2013: +4 certain occupations scheduled increase 2 → 6 % (2030) → 65 (2035) decrement of 9 % M 2015, for F 2030; %, 2014: +3,75 %; integrated in (2009/16) delayed by one p.a.; eligibility criteria minimum contribution 2021/2030 shift general scheme year; minimum pension disability pensions period: 13 → 15 years to pure inflation (2010) introduced 2009 (~ 90 tightened (2015) adjustment €/month) LV 62 → 65 (2014/25) 2 years before NRA minimum years of no adjustment 2nd pillar contribution rate: with deductions if contributions: 10 → 2009 – 2012; +4 % 8 → 2 % (2009); resurgence: 30 insurance years; 15 (2014) → 20 (2025) for pensions 2 → 6 (2013/16) all other ER options < 285 € in 2013; abolished as of 2012 2014ff.: CPI plus 25 % of wage increase 15
one year of contribution payments. The percentage points of GDP by 2060 in com- attainable benefit level is thereby signifi- parison to 2009.5 cantly reduced, and incentives are created Subsequently, in 2012, a new (NDC6 to stay in employment for more years be- look-alike) benefit formula with a built-in cause the accrual rate is progressive with sustainability factor for the supplementa- the total length of insurance (Nektarios ry pension scheme was enacted; pensions 2012: 267). Furthermore, the pensionable of the general scheme higher than 1,300 ages of men and women were equalized Euro were cut by twelve percent on aver- at age 65 until 2013. In future, entitlement age7; access to invalidity pensions was to a full pension will require 40 instead of made more difficult; and disproportion- 35 insurance years and pensions will be ately high one-off payments in the area calculated on the basis of the whole work- of supplementary pensions were cut. By ing life. Without reductions (6 % a year) 2015, incurring deficits of both the gener- only those workers who can prove forty al and the supplementary pension scheme insurance years can take early retirement will no longer be covered by state subsi- (from 60 years of age).4 From 2021 on, dies. From then on, the government’s fi- the standard and the early retirement age will be adjusted every three years accord- ing to the development of life expectancy. Two of the previous 14 monthly payments 5 When comparing the estimates of 2008 and 2011, Greece did best in containing projected were abolished and replaced by a (largely) spending increases until 2050: The increase uniform ‘vacation allowance’ of 800 Euro would be lowered by 8.7 percentage points only for pensioners above age sixty. This (from 24.1 down to 15.4 % of GDP), if the leg- allowance was cancelled in 2013. In fu- islated reforms were actually implemented (European Commission 2009: 291, 2012a: ture, the indexation of pensions in pay- 143, 328). During the period 2005 to 2008, ment must not be higher than the increase Portugal was ranking first (see below). in consumer prices; for the period 2011- 6 NDC is the abbreviation of ‘notional defined contribution’ and denotes a pension scheme 2014, the adjustment was suspended en- that, although still operating on a pay-as- tirely. Moreover, further measures have to you-go basis, mimics the working of a fully be taken if projections show an increase funded plan with benefits calculated in of pension expenditure of more than 2.5 quasi-actuarial manner in relationship to contributions paid. 7 Already in 2010, monthly pensions above 1,400 Euro were cut by 8 % and in 2011 those greater than 1,000 Euro by 5 to 15 %. “Official Several hundreds of professions had been 4 estimates suggest that pensioners drawing listed as ‘heavy’ or ‘hazardous’, implying the a total pension (…) of EUR 900 per month entitlement to a full pension after 35 years before the crisis suffered an overall reduc- of contributions as early as age 55. The 2010 tion of 26 % in 2009-12. The corresponding reform stipulated that a revised list must not reduction for those on a total pension of EUR cover more than 10 % of the labour force and 2,100 per month was 34 %” (Koutsogeor- a full pension should not be available before gopoulou et al. 2014: 34). Furthermore, in reaching the age of 60 and less than 40 years 2013, only pensions below 1,000 Euro were of service. exempted from further progressive cuts. 16 WORKING PAPERS 01 / 2015
nancial responsibility is restricted to a monization of the fragmented public pen- flat-rate basic pension8, which is sched- sion system (Natali/Stamati 2014: 317- uled to go into effect the same year (Euro- 8). Until 2007, these attempts were only pean Commission 2012a: 98; Petmesidou partially successful, but massive changes 2013: 604). took place between 2009 and 2011, when The ‘haircut’, predating another sup- the creditworthiness of the Italian state port package for Greece in November became increasingly endangered. No 2012, deprived the social insurance funds other country spent more on public pen- of a large part of its reserves held in Greek sions at that time (about 15 % of GDP) government bonds, and the liquidity prob- (see Jessoula, 2012: 14-20; Ministero lems of the pension system were aggra- 2012: 41-3). The most important changes vated due to lower government subsidies were launched by the ‘technocratic’ Monti and fewer workers paying contributions. government in 2011, which, due to sup- Obligations related to the support pack- pressed differences between political age included an immediate increase of parties, proved able to rapidly pass the pensionable age to 67 years in 2013, but reforms through the parliament. still allowing workers with forty insurance The harmonization of still occupation- years to retire at age 62 (with deductions), ally differentiated pension arrangements and to cut pensions of retirees, who ben- was taken further, including an equali- efited from the previously more generous zation of contribution rates (Table 2). calculation formula and/or prematurely Furthermore, the alignment of women’s claimed their pension. pensionable age with that of men was In Italy, the first attempt to contain speeded up and will be completed in 2018 the steep rise of public pension spending (in the public sector already realized in dates back to 1992. In 1995, the basis of 2011 and then – as for all men – raised the pension system was changed to the to age 66 in 2012). Besides, the standard NDC model which, within the framework retirement age and the age of eligibility of a lingering pay-as-you-go scheme, for seniority pensions have been linked to emulates the working of a fully funded the development of further life expectan- plan with quasi-actuarial benefits. All sub- cy from 2013 onwards. Thus, in 2019 (but sequent reforms aimed at an accelerated in 2021 at latest), a pensionable age of 67 implementation of the NDC rules, tighter years is expected for men and women in eligibility criteria for so-called ‘senior- both the private and public sectors, rising ity pensions’ (which, originally, could be to just below seventy by 2050. ‘Seniority claimed after a 35-years insurance period, pensions’ – hitherto available either after regardless of age), and advancing the har- forty years of contributions or at 62 years of age after 35 contribution years – are An amount of 360 Euro (2010 prices) will 8 de facto abolished since the conditions be taken into account when the individual benefit is calculated, but new retirees with follow the rising age limits while early re- fewer than 15 contribution years have to pass tirement is possible only with deductions a means-test. and if the accruing pension level exceeds 17
the social minimum pension by one and 2013. The age range will move from 63 a half times. In contrast, corresponding to 65 and the required insurance years increments are expected to result in pen- from 33 to 35. For unemployed persons sions that ensure the standard of living (involuntary early retirement) the condi- for those who continue working up to the tions change from age 61 to 63 and 31 to age of seventy. Considerable short- and 33 insurance years. Premature claiming medium-term savings arise from acceler- of benefits goes along with deductions ated implementation of the NDC system. (7.5 % per year) while deferring retire- From 2012 on, new pensions will be cal- ment age is rewarded with supplements culated pro rata, according to the contri- (between 2 and 4 % a year). In future, bution periods before 1995 in the old (DB) a ‘full’ pension will require 37 instead of system and the contribution years under 35 contribution years (while it will still be NDC rules after 1995. Beginning in 2013, the case that 15 years qualifies someone the age-specific coefficients for convert- for half of a full pension), and from 2022 ing notional assets into a monthly pension on, pensions will no longer be calculated are furthermore periodically adjusted to on the basis of the last 15 but 25 insur- lower mortality. Finally, the adjustment ance years (Table 2). Finally, a sustainabil- of pensions to price development for pen- ity factor was scheduled to take effect in sions over 1,400 Euro was suspended for 2027, but the implementation was accel- 2012 and 2013 (Natali/Stamati 2014: 318). erated once Spain had to apply for loans In Spain, there had been a switch from from the European Stability Mechanism expansion to consolidation already in (ESM) in 2012: Beginning in 2019, the 1985, and since 1995 all pension reforms level of newly awarded pensions will be have been based on the (repeatedly re- affected by changes in further life expec- newed) Toledo Pact between the respec- tancy at normal retirement age, and there tive government and the social partners. will be no return to price indexation of As a result, between 1998 and 2010, the pensions in payment. Instead, as of 2014, Spanish social security system ran sur- the annual adjustment will be determined pluses, so that 66 billion Euro (around 6.3 by the scheme’s financial position (ratio % of GDP) had accumulated in the re- of contribution revenues to pension pay- serve fund in 2011. After 2008, the assets ments) over the past five and (projected) have been increasingly invested in Span- next five years, but must not be less than ish government bonds (Casey 2014: 36-7). 0.25 percent.9 The most substantial changes of the The cumulative effect of the reforms (includ- 9 2011 reform, which will come into force ing the 2013 legislation) will be well beyond mainly between 2013 and 2027, include the calculations presented in the 2012 Age- a rise in the statutory retirement age ing Report (see Table 1, row 9). The replace- ment ratio is expected to drop sharply from from 65 to 67 for workers showing less 72.4 % in 2010 to 52.1 % in 2030 and further than 38.5 years of contribution payments. to 44.9 % in 2060. Instead of a rise (see Table Early retirement rules have again been 1, row 8), there should be a (small) decline in tightened (beyond the 2011 legislation) in the GDP share of public pension expenditure 18 WORKING PAPERS 01 / 2015
In the wake of an Excessive Deficit Furthermore, employees of state-owned Procedure, Portugal negotiated a pen- enterprises – banks, telecommunications – sion reform package with social part- were integrated in the pay-as-you-go pen- ners in 2007. It included higher pension sion insurance system and a total of 9.3 decrements for retirement before age 65 billion Euro of the capital reserves of spe- and strengthened financial incentives to cial schemes was transferred to the state continue working beyond that age; the budget10 and, hence, reduced the present already legislated pension calculation on deficit, but increased the unfunded obliga- the basis of the whole working career was tions of the general scheme (the so-called brought forward to 2017; a sustainability ‘implicit debt’). Finally, in January 2014, factor was introduced (2008), linking the the age limit that entitles to an unreduced level of newly awarded pensions to in- pension was raised from 65 to age 66. This creases of longevity; indexing of pensions cost-saving measure replaces the sustain- in payment was debased; and normal ability factor, linking initial pensions to av- retirement age of public service workers erage life expectancy, which was declared rose from 60 to 65 (completed in 2013). unconstitutional as well as other pension The combined effects are quite signifi- cuts (public sector pensions from the old cant: A comparison of projected pension scheme larger than 600 Euro). In future, spending in 2050 on the basis of calcula- normal retirement age will change along tions from 2005 and 2008 shows that Por- with longevity gains. tugal had taken the biggest leap of all EU countries. Instead of 20.8 percent of GDP, only 13.6 percent pension expenditure 3.3 The CEE Countries was estimated for 2050 (European Com- mission 2009: 104). The parametric pension reforms during Therefore, in order to reduce its pub- the 1990s in Hungary, Romania and Lat- lic deficit in the short term, Portugal was via were less a reaction to demographic obliged to take only a few pension reform change than to economic transformation. measures when it sought financial as- The successive paradigmatic restructuring sistance in 2011. Benefits were frozen in of their pension systems followed a wide- 2011 and not fully indexed to inflation in spread comprehension of ‘privatization’ as 2012. Pensions above a certain threshold expression of ‘modernization’ (Orenstein (2011-2013: 1,350 €; 2014: 1,000 €) are 2008; Cerami 2011; Fultz 2012). These burdened with a special levy rising with (and further) countries became amena- income level, and early retirement of em- ble to the transnational policy campaign ployed workers is ruled out until 2014 launched by the World Bank. A multi-pil- whereas older unemployed cannot take out a public pension before age 62 (Table 2). Already in 2005, three billion Euro had been 10 transferred from the capital reserves of the in 2060 (9.6 %) compared to 2010 when the state-owned banks’ special pension scheme figure stood at 10.1 % (European Commis- to cover the deficits of the general pension sion 2014: 14). scheme. 19
lar pension system including a mandatory of the second-pillar pension funds were and fully funded private pillar promised to ‘confiscated’ and transferred into the state ensure adequate as well financially sus- budget, thereby immediately reducing the tainable old-age security. However, the deficit and the amount of public debt. The problems with this new approach came to entitlements the participants had earned the fore during the economic slump. Even in the second pillar were shifted to the though it triggered significant changes, first pillar, which increased its long-term the recession was not the root cause. obligations (or rather the ‘implicit debt’). Hungary was a forerunner to introduce In order to extenuate the future spending the multi-pillar pension model. Already increase, opportunities to retire early via highly indebted before 2008, it became disability pensions or due to long service dependent on international loans as a re- have been eliminated almost completely, sult of the economic crisis. The balance- except for women (Table 2). of-payment assistance was granted on At the onset of the crisis, Romania’s condition of structural reforms, including public pension scheme was facing serious pensions. The package contained a gradu- challenges: There had been already less al increase of the standard retirement age contributors than beneficiaries (Table 1, (from 62 to 65); a less favourable calcula- row 4) while the informal economy was tion of initial pensions and indexation of (and still is) sizable, thus causing a wide- current benefits, and the abolition of the spread contribution evasion (like in Hun- 13th monthly pension payment (Simono- gary and Greece). After joining the EU, vits 2011). The newly elected Orbán gov- Romania has lost a rising number of po- ernment (2010) rejected further external tential contributors due to emigration (like rescue measures and turned to the struc- Latvia). Moreover, discretionary pension ture of the pension system for regaining increases of more than one third in both fiscal latitude. The pay-as-you-go first pil- 2007 and 2008 and another 13 percent lar lacked the necessary resources to hon- rise in 2009 (Ghinararu 2011: 240) proved our entitlements of present retirees be- to be largely responsible for the arising cause eight percentage points of the total state budget deficit when the country was contribution rate (33.5 % in 2010) were hit hard by the recession. Romania had to diverted into the second pillar. Those solicit for a twenty billion Euro loan from shortfalls had to be balanced out of the the IMF in 2009 but left its recently estab- state budget, which ultimately led to an lished and still small second-pillar scheme increase of public debt. Shortly after com- intact. It merely postponed the final divi- ing into office, the government started a sion of the total contribution rate by one turnaround which meant a factual aboli- year. In 2009, Romania even introduced tion of the multi-pillar system: Contribu- a modest minimum pension scheme. Re- tion payments into the second pillar were forms which started to take effect in 2011 stopped while the contribution revenues continued along the legislation of the year of the first pillar were increased accord- 2000 (Ghinararu 2011): Normal retire- ingly. The already accumulated assets ment age will increase further (but re- 20 WORKING PAPERS 01 / 2015
mains lower for women); the years of con- insurance contributions was lifted from tribution required for pension eligibility 2009 to 2013. For the same period, the and for a full pension will rise once more. adjustment of pensions in payment ac- Furthermore, pensions of the first-pillar cording to consumer price changes was scheme have not been adjusted from 2010 suspended.11 Further immediate savings to 2012. Between 2021 and 2030, the in- accrued from the predefined functioning dexation will gradually shift from hundred of the NDC-type first pillar: A lower level percent of inflation plus fifty percent of of employment (Table 1, row 1), mean- average real wage increases to pure price ing fewer contributors, together with a level changes. The traditionally far more significantly reduced average earnings generous special pension regimes for automatically devaluated the notional ‘as- government employees are integrated sets’ available for conversion into a pen- into the general scheme and, as a result, sion. Claiming a first pension in 2009 or benefit levels of different occupational 2011 made up for a difference of more groups will converge. Finally, the eligi- than thirty percent – otherwise identical bility criteria for early and disability pen- employment careers assumed (European sions have been tightened and recipients Commission 2012b: 296). Changes aim- of early retirement pensions face higher ing at the long-term sustainability of the decrements (0.75 % per month instead of first pillar have been legislated in 2012: 0.5 %). However, an across-the-board re- Normal retirement age will increase to 65 duction of pensions in payment by 15 per- while the minimum period required for an cent, as demanded by the IMF, was ruled old-age pension will rise to twenty years. unconstitutionally in June 2010 and hence Top growth rates from 2011 onwards al- removed from the reform package. leviated Latvia’s fiscal problems and al- Of all EU member states, Latvia expe- lowed for a changed division of the total rienced the most drastic economic slump contribution rate between the first and in 2009 (Table 1, row 6). It had to seek second pillar. In 2016, the partition will external aid from different lenders as well. be 14/6 percent and is expected to remain Thus, the first priority was to ensure the stable from then on, i.e. it will differ from financing of pensions in the short run. the originally planned equal split. Instead of finalizing the planned split of contributions between the first and sec- ond pillar in 2010 (10 percentage points for each), the rate diverted into the fully funded second pillar was lowered from eight to two percent in 2009 in order to Another emergency measure – a temporary 11 close the financing gap of the first pillar. 10 percent reduction of all pensions in pay- According to the NDC rules, this shift im- ment (70 % for pensioners also earning a salary) from July 2009 to end of 2012 – was plies correspondingly higher first-pillar scrapped by the Latvian Constitutional Court pension entitlements in future. Addition- in December 2009, and thus the withheld ally, the limit on earnings subject to social amounts had to be reimbursed. 21
4. Commonalities and Differences The severity and duration of the crises eliminated in 2012 but partly reinstated varied and left different imprints on EU by the constitutional court one year later. members’ state finances and welfare state A reduced (but still permanent) special arrangements. Nevertheless, after 2008, levy (2.0 to 3.5 % instead of 3.5 to 10 %) the countries studied in this paper have on public pensions greater than 1,000 legislated similar changes of their pension Euro will not go into effect in 2015 due to systems for attaining savings on public the court’s recent verdict (Fischer 2014). pension expenditure in the short and long Short term savings also result from run. The set of adjustments does not dif- closing early retirement pathways, tight- fer much from those reform elements that ening entry conditions or computing had been employed before 2008 or in oth- decrements when the pension is claimed er countries since the range of options is prematurely. Such changes happened in inherently limited – although varying with all eight countries as was also true for an the type of the public pension scheme (ba- increased normal retirement age which, sic or earnings-related). However, in most depending on the length of the phasing-in of the eight countries the magnitude and period, delivers medium or long term sav- hence the impact of the post-2008 chang- ings. However, the target ages set in the es differ from what was legislated before CEE countries remain (much) lower than or from reforms concluded in less troubled those in Italy, Spain or Ireland. That ap- countries at the same time in view of ad- pears comprehensible in view of further vancing population aging: The pre-2008 life expectancy at age 65 being shorter by reforms caused less immediate impair- about three years (Table 1, row 5). Like- ments of the living conditions of pension- wise, mainly long-term savings will accrue ers and workers close to retirement. from changes of the benefit formulae af- Suspended or less favorable indexa- fecting future claimants. In particular, tion rules, which came about in all eight tightening the contribution/benefit link countries, ease financial troubles of public as in NDC schemes (Italy and Latvia) or schemes most rapidly and, due to the base taking into account more insurance years effect, will ripple through subsequent (up to the whole employment career) lead years, thus yielding further savings (Table to lower pensions for the newly retired. 2). Nominal cuts of pensions in payment Whereas NDC schemes operate with (as recently happened in Hungary, Greece a built-in life expectancy factor (when and Ireland) are even more effective but converting notional ‘assets’), all South- can also turn out to be problematic. Cor- ern European countries have introduced responding legislation has been ruled a sustainability factor that automatically unconstitutional in Romania, Latvia and changes system parameters (normal re- in Portugal. In the latter country, the 13th tirement age, number of insurance years and 14th monthly pension payment was required for a ‘full pension’ or the initial 22 WORKING PAPERS 01 / 2015
benefit level) upon longevity develop- should be even smaller (see also footnote ments. Moreover, all eight countries have 9 on Spain). made steps forward to harmonization of The financial market crisis of 2008 pension schemes, either by unifying hith- posed serious problems for countries erto fragmented schemes in order to save whose pension system relied heavily on on administrative costs and/or by remov- private, fully funded components. In our ing existent privileges for certain occu- sample, this was Ireland. Because those pational groups (such as a lower normal events – occupational and sovereign pen- retirement age or higher accrual rates) sion funds suddenly losing much of their (see also Natali/Stamati 2014: 323). Pre- assets – are unpredictable and cannot be dominantly, those equalizing reforms fo- ruled out in future, such vulnerability also cused on public service workers and on affects the CEE countries where pre-fund- women when they were still entitled to ed private pensions were expected to play a lower pensionable age (however, Hun- a larger role in the retirement income mix. gary and Romania remain exceptions in In the CEE countries, the development of that respect). In not a single country was the mandatory second pillar reveals the the solvency of public pension schemes specific challenge of transition costs that strengthened by raising the contribu- is also known as ‘double payment prob- tion rate – at least not for employers. lem’: The younger cohorts (plus the mid- On the contrary, intended to stimulate dle-aged workers who voluntarily joined job growth, their rate was (temporarily) the second pillar in larger numbers than lowered in Greece, Ireland, Portugal and expected) also build up financial assets Romania12, whereas employees became for the private component of their retire- subject to a higher contribution rate in ment income out of the diverted share of Ireland, Latvia, and Portugal (2015). social insurance contributions. However, As a result of the intensified reform for several decades the pension entitle- activity, the predicted growth in public ments of present-day retirees and older pension spending until 2040 will be con- workers will have to be honored. The siderably lower as was calculated in the lowered contribution revenues of the first 2009 Ageing Report (Table 1, row 8; Eu- pillar are insufficient to meet these obliga- ropean Commission 2012a: 142-4). Since tions (Holzmann/Guven 2009: 170, 230-1) the most recent reforms were not includ- while a rising gap could be covered out of ed in the projections, the future increase the state budget only as long as it was not under pressure itself. However, this was A most significant reduction by 5 percentage 12 exactly the case after the economic slump points of employers’ contribution rate from previously 20.8 % and 25.8 % for arduous in 2009 and forced the governments in (30.8 % for very arduous) working conditions Latvia and Hungary (and elsewhere) to became effective in Romania in October take action. The financial market crisis did 2014. The arising shortfalls have to be cov- not only shake the public’s confidence in ered by the government and may endanger a balanced state budget, unless an enormous fully funded pensions. It also triggered a job growth will be triggered. rethinking among political actors in CEE 23
countries, leading to a revision of the im- different: Selling off Dutch, French and plemented multi-pillar model, like in Po- German government bonds and purchas- land or Slovakia (Orenstein 2011; Drahok- ing Spanish ones instead, pushed up the oupil/Domonkos 2012). price of the latter and thus stemmed the Utilizing pension (reserve) funds for rise in the interest rate (Casey 2014: 37). the sake of a currently lower public deficit That way the costs of servicing the Span- was not confined to Hungary and Latvia. ish sovereign debt were kept in check. Portugal’s government took over the as- However, the Spanish government will sets of special pension schemes. Similar- have to redeem the issued bonds when ly, in Ireland the reserve funds of certain the social security system is confronted public sector pension plans were trans- with contribution shortfalls due to popu- ferred to the national budget (the same lation aging or economic recession. All happened de facto with the larger part of in all, whenever governments held a grip the NPRF) (Casey 2014: 33, 37-8). These on (pension) reserve funds or mandatory attempts to meet strict deficit criteria second-pillar pension schemes, they used imply that – since earned entitlements them as a ‘piggy bank’ to reduce budget were not declared void – an enlarged part deficits. This is actually a new element of of future pension payments is moved to crisis policies that was facilitated by the pay-as-you-go funding in all four coun- pension reforms of the late 1990s and tries, whereas exactly the opposite was early 2000s. Without doubt, such crisis originally intended. The effects of the management shifts enlarged pension ob- portfolio shift of the Spanish social secu- ligations into the future. rity reserve fund after 2008 are not much 5. The Social Impact of Recent Pension Reforms A look at the income situation of older ing that the AROP rate for the 65-plus has people (65+) in 2012 reveals a diverse and nowhere increased after 2008. Rather, the surprising picture. The at-risk-of-poverty rate actually fell – most considerably in (AROP) rate, meaning less than sixty per- Latvia (52.0 % in 2008, 13.9 % in 2012). cent of the weighted median income, is Such development is mainly due to the lowest in Hungary, followed by Latvia and fact that, for example in Ireland, Greece Ireland. In all countries, except Portugal, and Latvia, the median income threshold the AROP rate of the elderly is below that decreased as a result of unemployment, of the adult population below age 65 (Ta- wage cuts and profit setbacks among the ble 1, row 12). At first glance, it is surpris- self-employed whereas, at first, pensions 24 WORKING PAPERS 01 / 2015
remained largely stable and indeed func- clue because the calculations are based tioned as ‘automatic stabilizers’. The in- on standardized assumptions regardless creased GDP share (2007/2010) of public of the actual prevalence of complete and pension spending (Table 1, row 8) shows non-perforated employment careers in a this quite clearly. Stable or even declined given country, wage fluctuations over the AROP rates do not mean that the elderly life course, or participation in supplemen- have become more ‘wealthy’. Rather, by tary pension schemes. OECD data (2013b: now they have merely incurred smaller 123) show that in Greece and Portugal income losses than the population of em- about sixty percent of the retirees receive ployable age; and those among the elder- no more than the (contributory) minimum ly, who received the lowest benefits regu- pension while in Italy and Spain the same larly suffered least because direct pension is true for around thirty percent. The level cuts or retrenchments via ‘solidarity lev- of these minimum pensions or targeted ies’, benefit freezes or the like, when they benefits (Table 1, row 11) is considerably occurred, were targeted at retirees with lower than the standardized ‘replacement higher pensions.13 ratios’. Thus, only limited informative val- The altogether not too bleak present ue should be attached to them. situation of pensioners (at least in relative In order to evaluate the living condi- terms) might change when the reforms tions of present and future retirees, a few will take full effect. The downside of con- further aspects have to be considered. In taining the long-term growth of public all eight countries the homeownership pension spending is lower replacement rate among the elderly is very high (Table rates (Table 1, rows 9 and 10).14 These 1, row 13), and few are still burdened with figures, however, only provide a rough mortgages. If homeowners’ imputed rents 13 In Greece, however, certain professions suc- are taken into account, income inequality cessfully defended their privileges as Mat- and the AROP rate are generally reduced saganis (2012: 416) concludes from a closer whereas disposable income increases inspection of recent pension policy: “The (Sauli/Törmälähto 2010; OECD 2013b: familiar pattern of powerful groups securing for themselves favourable treatment at the 76-87, 104-5). Thus, homeownership may expense of less powerful ones reasserted partially compensate for low minimum itself – even under emergency conditions.” benefits (Table 1, row 11). Effects in the 14 The ‘gross average replacement rate’ is calculated as the average first public pen- opposite direction may emanate from co- sion of those who retire in a given year as a payments when utilizing the health care share of the economy-wide average wage at system. Those individual out-of-pocket retirement (European Commission 2012a: expenses amount to more than one third 129). The ‘net theoretical replacement rate’ indicates the first public pension of a hypo- (Greece and Latvia) or one quarter (Hun- thetical average income earner retiring at gary and Portugal) of total health care 65 after a contribution period of 40 years as funding (OECD 2012b: 129). If pension- compared to the last wage before retirement ers, usually more in need of health care (both pension and wage after income tax and social security contributions) (European than younger people, are not exempted Commission 2012b: 218, 240). from co-payments their disposable in- 25
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