International Comparisons
Sharing Responsibility: A Partnership to Promote Sound Pension Schemes and Secure Retirement
Speech
March 2004
Steen Langebaek, President
AGE - European Older People's Platform
A
Balancing Act: Achieving Adequacy and Sustainability in
Retirement Income Reform
Brussels, Belgium
Thank you so much for inviting me to reflect on how to find the right balance in this global, essential but also intricate and tough balancing act.
I am especially pleased having been invited by two institutions I know well. CEPS I have known from my working life in Copenhagen and AARP after I retired.
A most perfect symbiosis!
The subject of the discussion today covers matters I personally find extremely important, matters in which AGE-The European Older People's Platform, where I for the time being have the honor of being the president takes a great interest.
As you probably all know, the EU countries are trying to handle the challenges on aging through the so-called Open Method of Coordination
Here, in fact, we see an attempt to be proactive through an active partnership: EU countries sharing experience in the fields of pension systems, discussing different solutions, setting up common objectives and trying to find a model for best practice.
This cooperation between the different member states is not the only element of partnership. Besides this, and may be even more important, is the cooperation in the civil society. I know this process is not equally open in all the member states, but at least this is the basic principle.
But there will be no doubt: We in AGE welcome the objectives underlying the EU’s Open Method of Coordination, which is based on the principle of subsidiarity. We believe this exercise will help to lay the foundation to ensure adequate pensions for all who reach retirement age in the present and future member states in the years to come.
The member states have previously committed themselves to build a society for all ages and to develop solidarity between generations.
This is, I find, a crucial issue.
We have today heard a number of highly interesting presentations and discussions. But I think you will admit that the emphasis has been on the economic, financial and technical side of pension systems and pension schemes. And rightly so. But I do want to stress that also other aspects are at stake.
Let me mention some other points which I find absolutely crucial when discussing pension systems.
First of all I feel, that instead of focusing only on pension crises, sustainability problems and all the other obvious challenges deriving from the aging populations, we should look at the development in a historical context.
By doing this one has to admit, that increased life expectancy and improved health for older people are amongst the proudest achievements of our social and economic development.
Older people can expect to live longer due to better health conditions, and due to working conditions which are not nearly as harmful as in older days.
And one can not deny, that the increase in wealth and education, high taxation and the entry of women into the working force has meant that less children are being born than before.
In fact, a larger number of active, healthy older people represent a growing resource for the future as well as an increase in future fulfillment.
Secondly I wish to stress the principle of inter generational solidarity, even though I later will argue that we should stop talking about different generations
Older and retired people have contributed to society, and to finance the social security systems throughout their working and caring lives. In later life they continue to do so providing care for dependants, doing voluntary work and passing on their experience. And adding to this: Many also have paid employments.
Intergenerational solidarity is strongly related to the question of trust. There does in fact exist an implicit contract by which people of the working age support the cost of pensions and care for the elderly, expecting that they themselves will receive similar support in their old age.
However a number of Euro-Barometer surveys have revealed that a significant number of citizens do not trust the political systems to deliver on these promises. Let me mention that DANE AGE, where I was chairman until recently, a short while ago made a survey on this issue.
Concerning the question of intergenerational solidarity, the results were excellent. There was an almost overwhelming support of our tax-based state pension. Younger generations were in fact also in favor of this pension system; adding to this, a clear majority expressed the opinion that the level of state pensions for pensioners least well off.
But talking about trust, the result was worrying: The vast majority did not trust they would receive such pensions when they retire two, three or four decades from now.
Thrift and saving for the future – in other words: taking responsibility for one’s own old age are terms heard over and over again when discussing pensions. But the collapse in private pension schemes, and the lack of transparency in the markets for private pensions products, create a lack of trust, when it comes to private solutions.
What should be done to overcome this o these problems?
In AGE we have set up five key priorities when discussing the future pension systems. We call for these priorities to be the basis for a positive and active development in the European pension systems, while recognizing that each country has a specific national system within which changes can be made.
The first priority is to ensure that older people who have reached statutory pension age have the right to a decent level of pension, giving them a fair share of society’s economic well-being, not just preventing outright poverty. Their pension income level must allow older people to participate actively in public, social and cultural life, to be active consumers and be able to cover the cost of health problems etc.
We know that widespread poverty and social exclusion today persists among older people in most EU member states. Even the richer member states have problems of relative poverty, and all around the EU countries we find an increase in absolute poverty amongst older people, a fact we in AGE are following with the greatest attention.
Although many governments like to claim that their pension systems are generous, our opinion is, that adequate pensions are still not universally available across the EU. Hence, pension systems must be improved, not simply maintained, far less weakened!
The second priority is, that it is essential that pensions are indexed so as to ensure that pensioners keep up with progress in society’s prosperity. The best method to obtain this is by indexation to average earnings.
Price indexation is not enough, as it will leave pensioners lagging behind society’s economic well-being over time, creating problems of relative poverty
The third principle is to ensure that individuals are able to obtain a high income replacement rate when they retire. This implies ensuring access to pension and saving schemes are transparent and subject to effective governance and regulation. The regulatory framework must allow workers to transfer their occupational and private pension entitlements between Member States as well as within them, avoiding problems such as double taxation.
This is a matter of trust, as mentioned before.
Fourthly we in AGE find it necessary to stress that both genders shall have equal rights, eliminating gender discrimination in pension systems as in the labor markets, and ensure that time spent caring for children, as well as for the elderly, gives pension entitlements under the first pillar system, and that pension rights are individualized.
And fifthly we need to allow and encourage older people to continue working longer, outlaw age discrimination, promote lifelong learning, training etc. We welcome the target enshrined in the Lisbon Strategy of increasing the EU-wide employment rate for older workers (55-64) to 50% and we call for a wide range of enabling measures to make this a reality
Many economists claim that the royal road to ensure sustainability is to prolong working lives.
In this I fully agree. When we work longer, production values are created, pension contributions are paid, pension income is deferred, taxes are paid and competitiveness is improved due to a larger and skilled labor supply
But there are caveats: The ability to go on working differs from individual to individual. Some have had hard and demanding jobs and want – rightly so – to enjoy some years in retirement before their health says stop.
So in order to have lots of people who are willing and able to work more years, politicians, employers, trade unions need to plan ahead.
This is not an easy problem to solve, but it has to be done.
And the reason why it is so difficult is because it means a fundamental change of attitudes in our so-called developed societies. We still live under the impression that people who have reached the age of say 55 or 60 are worn out. This is - if I may say so on my own behalf – a very old fashioned attitude!
Today many people over 60 are in very good health, are knowledgeable and most willing to go on working. Society cannot afford to scrap them, and to be honest, it’s rather stupid to do so.
Mean while making this possible, attitudes towards the elderly have to change. The working environment, the politicians, the employers, the trade unions etc. have to change their attitudes and be supportive by developing human resources and abolishing age discrimination.
And let me at this stage come back to intergenerational solidarity
This solidarity, in my view, stands for older people’s sense of responsibility for younger generations, their well-being and living conditions.
People I meet my own age, are deeply concerned with the living conditions of their children, their grandchildren well even their great-grandchildren. We want the next generations to thrive knowing very well, that if they don’t succeed, we oldies will have a problem.
In my view we shouldn’t talk again and again about the different generations. We should much rather talk about one generation: The living generation.
This means a change of attitudes, not only amongst those who we regard as young people, but certainly also among my contemporaries.
So let’s get on with the work.
Let’s achieve Adequacy and Sustainability in Retirement for
one generation:
The living generation!