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Chapter 4: Pensions and Children

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  • Lars Calmfors
  • Giancarlo Corsetti
  • Seppo Honkapohja
  • John Kay
  • Willi Leibfritz
  • Gilles Saint-Paul
  • Hans-Werner Sinn
  • Xavier Vives

Abstract

This chapter is a primer of key economic issues in the reform of pension systems in the EU. The chapter begins with an overview on the strains on European pension systems that loom ahead as a result of the ageing populations in the EU countries. The old-age dependency ratios are forecasted to grow to very high levels, which has major fiscal implications, as the pension system is, to a large extent, a part of the public sector. The chapter discusses principles for reforms of the pension systems that are needed to fix the emerging budget problems and to improve efficiency. The strain can be relieved to some extent by increasing the retirement age and lowering pension benefits, as well as by adopting more general structural policies that enhance economic growth. Our key recommendation is to add a funded pillar to the existing pay-as-you-go systems, to mitigate the missing human capital (due to ageing) by adding incentives for real capital formation. Moreover, the pay-as-you-go pension could be differentiated according to the number of children, provided individually tailored savings plans for the funded pillar are designed to ensure a sufficient level of overall pensions for the childless.

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Bibliographic Info

Article provided by CESifo Group Munich in its journal EEAG Report on the European Economy.

Volume (Year): (2005)
Issue (Month): (03)
Pages: 69-101

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Handle: RePEc:ces:eeagre:v::y:2005:i::p:69-101

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  1. Sinn, Hans-Werner, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," Munich Reprints in Economics 19859, University of Munich, Department of Economics.
  2. Robert Fenge & Martin Werding, 2003. "Ageing and Fiscal Imbalances Across Generations: Concepts of Measurement," CESifo Working Paper Series 842, CESifo Group Munich.
  3. Hans-Werner Sinn, 2005. "Europe’s Demographic Deficit A Plea For A Child Pension System," De Economist, Springer, vol. 153(1), pages 1-45, December.
  4. Bernard Casey & Howard Oxley & Edward R. Whitehouse & Pablo Antolín & Romain Duval & Willi Leibfritz, 2003. "Policies for an Ageing Society: Recent Measures and Areas for Further Reform," OECD Economics Department Working Papers 369, OECD Publishing.
  5. Robert Fenge & Martin Werding, 2003. "Ageing and the Tax Implied in Public Pension Schemes: Simulations for Selected OECD Countries," CESifo Working Paper Series 841, CESifo Group Munich.
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