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Demographic Fluctuations, Sustainability Factors and Integenerational Fairness – An Assessment of Austria's New Pension System

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Abstract

This study discusses important elements of Austria's recently harmonized statutory pension system. In particular, the author investigates in how far the new system responds to the twofold demographic challenge of declining birth rates and increasing life expectancy and what this means in terms of fiscal sustainability and intergenerational redistribution. Austria's defined benefit system is found to have more in common with Germany's system of earnings points than with Sweden's notional account system — with the exception that the sustainability factor, the adjustment mechanism triggered by demographic changes, has been designed differently in Germany and in Austria. A critical analysis of the Austrian provisions identifies the following problems: First, the application of the sustainability factor is activated only by deviations from projections and not to demographic movements as such. Second, adjustments are not to be automatic. Third, the requirement of an “even adjustment7” is not spelled out in detail. Fourth, it is doubtful whether evenness is a desired feature in the first place since generation-specific reproductive behavior is neglected in this scenario. Overall, the basic structure of Austria's new model gets a favorable rating, as it increases the degree of intergenerational fairness, supports individual, intersectoral and international flexibility and corrects some design flaws of the old pension regime. Conversely, weaknesses are identified with regard to the transitional arrangements, the contribution side and the sustainability factor.

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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

Volume (Year): (2005)
Issue (Month): 1 ()
Pages: 23–42

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Handle: RePEc:onb:oenbmp:y:2005:i:1:b:2

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Keywords: Pension System;

References

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  1. Orszag, Mike & Snower, Dennis J., 2002. "From Unemployment Benefits to Unemployment Accounts," IZA Discussion Papers 532, Institute for the Study of Labor (IZA).
  2. Marcel Thum & Jakob von Weisäcker, 2000. "Implizite Einkommensteuer als Messlatte für die aktuellen Rentenreformvorschläge," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 1(4), pages 453-468, November.
  3. Palmer, Edward, 2000. "The Swedish pension reform model : framework and issues," Social Protection Discussion Papers 23086, The World Bank.
  4. Valdes-Prieto, Salvador, 2000. " The Financial Stability of Notional Account Pensions," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 102(3), pages 395-417, June.
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Cited by:
  1. Hagist, Christian & Moog, Stefan & Raffelhüschen, Bernd & Vatter, Johannes, 2009. "Ehrbare Staaten? Die Ergebnisse der Generationenbilanzierung im internationalen Vergleich," FZG Discussion Papers, Research Center for Generational Contracts (FZG), University of Freiburg 34, Research Center for Generational Contracts (FZG), University of Freiburg.
  2. Asghar Zaidi & Aaron George Grech & Michael Fuchs, 2006. "Pension policy in EU25 and its possible impact on elderly poverty," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 6225, London School of Economics and Political Science, LSE Library.
  3. Moog, Stefan & Müller, Christoph & Raffelhüschen, Bernd, 2010. "Ehrbare Staaten? Die deutsche Generationenbilanz im internationalen Vergleich: Wie gut ist Deutschland auf die demografische Herausforderung vorbereitet?," FZG Discussion Papers, Research Center for Generational Contracts (FZG), University of Freiburg 44, Research Center for Generational Contracts (FZG), University of Freiburg.
  4. Grech, Aaron George, 2006. "Elderly poverty in EU25," MPRA Paper 33618, University Library of Munich, Germany.

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