The Pensions Outlook 2012

Governments will need to raise retirement ages gradually to address increasing life expectancy in order to ensure that their national pension systems are both affordable and adequate, according to a new OECD report. At a time of heightened global economic uncertainty, such reforms can also play a crucial role in governments’ responses to the crisis, contributing to fiscal consolidation at the same time as boosting growth.

Over the next 50 years, life expectancy at birth is expected to increase by more than 7 years in developed economies. The long-term retirement age in half of OECD countries will be 65, and in 14 countries it will be between 67 and 69. The Pensions Outlook 2012says that increases in retirement ages are underway or planned in 28 out of the 34 OECD countries. These increases, however, are expected to keep pace with improved life expectancy only in six countries for men and in 10 countries for women. Governments should thus consider formally linking retirement ages to life expectancy, as in Denmark and Italy, and make greater efforts to promote private pensions.

“Bold action is required. Breaking down the barriers that stop older people from working beyond traditional retirement ages will be a necessity to ensure that our children and grand-children can enjoy an adequate pension at the end of their working life,” said OECD Secretary-General Angel Gurría. “Though these reforms can sometimes be unpopular and painful, at this time of tight public finances and limited scope for fiscal and monetary policy, these reforms can also serve to boost much needed growth in ageing economies.”

The Pensions Outlook 2012 finds that reforms over the past decade have cut future public pension payouts, typically by 20 to 25 per cent. People starting work today can expect a net public pension of about half their net earnings on average in OECD countries, if they retire after a full career, at the official retirement age. But in nearly all the 13 countries that have made private pensions mandatory, pensioners can expect benefits of around 60% of earnings.

Conversely, in countries where public pensions are relatively low and private pensions voluntary, such as Germany, Ireland, Korea, Japan and the United States, large segments of the population can expect major falls in income upon retirement.

This could cause pensioner poverty to increase significantly. Later retirement and greater access to private pensions will be critical to closing this pension gap, says the OECD.

However, making private pensions compulsory is not necessarily the answer for every country. According to the report, such action could unfairly affect low earners and be perceived as an additional tax. Auto-enrolment schemes – where people are enrolled automatically and can then opt out within a certain time frame – might be a suitable alternative.

Italy and New Zealand have already introduced such schemes and the UK is set to roll one out in October 2012. However, the report finds that results are mixed, with a major expansion of coverage of private pensions in countries like New Zealand, and having only a small effect in others like Italy.

More broadly, reforming tax reliefs to encourage private pension savings is also needed, as low earners and younger workers are much less likely to have a private pension. Facilitating matching contributions or giving flat subsidies to savers, such as in Germany and New Zealand, would improve their incentives to contribute. To boost confidence in private pensions, governments also need to improve their oversight of funds to ensure that charges are kept low and risks minimised.

This inaugural edition of the Pensions Outlook also includes the first comprehensive evaluation of national Defined Contribution systems, which are now a central feature of many countries’ pension systems. Among other recommendations, the report argues that it is critical to set the minimum or default contribution rate in Defined Contribution systems at an appropriate level.

Contributions to these systems need to be high enough so that together with public pensions they generate sufficient income at retirement. While Australia is moving in the right direction by increasing its contribution rate from 9% to 12%, it remains too low in countries such as Mexico and New Zealand (6.5% and 3%, respectively).

For comment or further information, journalists should contact Juan Yermo of the OECD’s Financial Affairs division (tel.  + 33 1 45 24 96 62) or Edward Whitehouse of the OECD’s Social Policy division (tel.  + 33 6 25 89 56 67).

Highlights of the report are available at www.oecd.org/daf/pensions/outlook

The Challenge of Public Pension Reform in Advanced and Emerging Economies

IMF. This paper reviews past trends in public pension spending and provides projections for 27 advanced and 25 emerging economies  over 2011–2050. In constructing these projections, the paper incorporates the impact of recent pension reforms and highlights the key assumptions underlying these projections and associated risks. The paper also presents reform options to address future pension 

Public pension reform will be a key policy challenge in both advanced and emerging economies over coming decades. Many economies will need to achieve significant fiscal consolidation over the next two decades. Given high levels of taxation, particularly in advanced economies, fiscal consolidation will often need to focus on the expenditure side. As public pension spending comprises a significant share of total spending, and is projected to rise further, efforts to contain these increases will in most cases be a necessary part of fiscal consolidation packages. Pension reforms can also help avoid the need for even larger cuts in pro-growth spending, such as public investment, and help prevent the worsening of intergenerational equity caused by rising life expectancies (at a pace faster than expected) and longer periods of retirement. Finally, some pension reforms, such as increases in retirement ages, can raise potential growth. Thus, while the appropriate level of pension spending and the design of the pension system are ultimately matters of public preference, there are several potential benefits for countries that choose to undertake pension reform. Against this background, this paper provides: (i) an assessment of the main drivers underlying spending trends over recent decades; (ii) new projections for public pension spending in advanced and emerging economies over the next 20 to 40 years; (iii) an assessment of the sensitivity of the country projections to demographic and macroeconomic factors, and risks of reform reversal; and (iv) country-specific policy recommendations to respond to pension spending pressures.

Pension spending is projected to rise in advanced and emerging economies by an average of 1 and 2½ percentage points of GDP over the next two and four decades, respectively, and is subject to a number of risks. During 2010–2030, increases in spending in excess of 2 percentage points of GDP are projected in nine advanced and six emerging economies. There is considerable uncertainty with respect to these projections, but risks are on the upside for a number of countries. Under a scenario where life expectancy is higher than anticipated—life expectancy projections have in the past underestimated actual increases—pension spending would be over 1 percentage point of GDP higher than projected in 2030 in five economies. Under a low labor productivity scenario, pension spending would be over ½ percentage point of GDP higher in three economies. Sizable risks are also associated with implementing enacted reforms as well as contingent fiscal risks if governments have to supplement private pensions should these fail to  eliver adequate benefits.

The appropriate reform mix depends on country circumstances and preferences, although increasing retirement ages has many advantages. It is important that pension reforms do not undermine the ability of public pensions to alleviate poverty among the elderly. Raising retirement ages avoids the need for further cuts in replacement rates on top of those already legislated, and in many countries the scope for raising contributions may be limited in light of high payroll tax burdens. Longer working lives also raise potential output over time. In many advanced economies there is room for more ambitious increases in statutory retirement ages in light of continued gains in life expectancy, but this should be accompanied by measures that protect the incomes of those who cannot continue to work. In emerging Europe, one possible strategy would be to equalize retirement ages of men and women. In other emerging economies, where pension coverage is low, expansion of non-contributory “social pensions” could be considered, combined with reforms that place pension systems on sound financial footing, including raising the statutory age of retirement. Where average pensions are high relative to average wages, efforts to increase statutory ages could be complemented by reductions in the generosity of pensions. Where taxes on labor income are relatively low, increasing revenues could be considered, and all countries should strive to improve the efficiency of payroll contribution collections.

INTERNATIONAL MONETARY FUND. Prepared by the Fiscal Affairs Department.Approved by Carlo Cottarelli.December 28, 2011. 

The Challenge of Public Pension Reform in Advanced and Emerging Economies x

Chile:Pensión anticipada,impaciencia y aversión al riesgo

Mientras que con las políticas de pensiones se procura retardar la edad de jubilación, la pensión anticipada es de uso bastante frecuente en Chile. En efecto, del total de personas que decidieron pensionarse en el año 2006,de personas que decidieron pensionarse en el año 2006, el 35% lo hicieron en forma anticipada1. Según las administradoras de fondos de pensiones (afp), la edad promedio de los pensionados por vejez anticipada es de 55 años. Desde el punto de vista de las políticas públicas resulta interesante analizar los motivos que condujeron a una persona a tomar tal decisión. En este artículo se presenta una nueva perspectiva en la que se expone cómo la impaciencia y la aversión al riesgo juegan un papel importante en la decisión de adelantar la pensión.

En el caso de pensionarse de manera anticipada, el individuo obtendrá menos recursos económicos que si lo hiciera a la edad legal, con lo que además tendrá que financiar más años de pensión en promedio (Nalebuff y Zeckhauser, 1985). El hecho de que el número de pensionados aumenta cada año y que el 35% de ellos se pensionan de forma anticipada, hace relevante comprender cómo esta aversión al riesgo influye en la decisión de pensionarse antes de la edad legal.

En Chile, para poder pensionarse anticipadamente se debe pertenecer al nuevo sistema por un período no menor de cinco años y presentar una pensión que sea igual o superior al 62% de las rentas imponibles y declaradas en los últimos 10 años. Sin embargo, medidas como esta posiblemente no cambien la condición de impaciencia de las personas.

A la edad en que enfrenta la decisión de pensionarse anticipadamente, o a la edad legal, un individuo está más consciente de la pérdida de capacidad cognitiva y motora propia de ese período de su vida que en la adultez media. De esta manera, la forma en que valora los años que le quedan por vivir (esperanza de vida) puede generar heterogeneidad en la impaciencia relativa. La incertidumbre que rodea el poder disfrutar de calidad de vida en el futuro hará que los individuos renuentes al riesgo prefieran el consumo presente al consumo futuro. En este artículo se ofrece evidencia de que mientras más alto es el nivel de aversión al riesgo del individuo, más se exacerba su impaciencia relativa.

En el presente documento, la decisión de pensionarse será representada por medio de un modelo de utilidad agregada de dos períodos, de modo que si el imponente se pensiona al inicio del primer período, lo está haciendo de forma anticipada, mientras que si lo hace al inicio del segundo período, se está pensionando a la edad legal. Así, la edad legal condiciona el corte entre estos períodos. En la estimación se utilizó un modelo de elección discreta en que solo se distingue si el individuo se pensiona de forma anticipada o no. La estimación toma la estructura sugerida por el modelo teórico, tratando de identificar la incidencia de la percepción de la calidad de vida futura de acuerdo con su esperanza de vida (Bleichrodt y Quiggin, 1999) en la impaciencia que conduce a pensionarse anticipadamente.

Los resultados muestran que aquellos que se pensionan anticipadamente tienen una mayor tasa de descuento intertemporal, lo que se explicaría por la esperanza de vida futura. Además, se encuentra cierta evidencia de que mientras más alto es el nivel de aversión al riesgo, mayor es la impaciencia por pensionarse de forma anticipada, lo que podría deberse a la incertidumbre sobre la calidad de vida futura.

El resto del artículo se organiza de la siguiente manera: luego de esta Introducción, en la sección II se desarrolla una breve revisión del contexto de la regulación, los datos y la literatura existente. En la sección III se presenta el marco teórico y el método de estimación utilizado. La sección IV contiene el análisis empírico, la descripción de variables y los resultados empíricos, además de algunas posibles extensiones y consideraciones. Finalmente, se presentan las principales conclusiones.

Jaime Ruiz-Tagle, Profesor Adjunto, Departamento de Economía y Centro de Microdatos Universidad de Chile y Pablo Tapia, Profesor Adjunto de Análisis Estadístico, Departamento de Administración, Universidad de Chile

Signatura:  LC/G.2508-P/E.Fecha: Diciembre 2011.Páginas:  113-132. Revista CEPAL Nº 105

Chile: Pensión anticipada, impaciencia y aversión al riesgo

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