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EU pension reform - An overview of the debate and an empirical assessment of the main policy reform options

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  • K. Mc Morrow
  • W. R�ger
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    Abstract

    This paper on European Union (EU) pension reform provides an overview of the debate and, on the basis of a series of model simulations, makes an empirical assessment of the main pension policy reform options at the EU, not the Member State, level. It estimates what it would take to bring the public PAYG pension system back into equilibrium and assesses the case for a shift to funding. The main conclusion of this paper is that the EU pension system should in the very long run (i.e. over more than one generation) be fully funded, with this being achieved using a two-stage optimal transition path. Stage one of this transition process should concentrate on stabilising the PAYG system and achieving a partial shift to funding, with stage two only occurring once circumstances permit. The fully funded system, once established, should have public and private pillars, with the public system in effect replacing the old PAYG system with a similar compulsory, defined benefit, system and with the private pillar being a voluntary, defined contribution, system.

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    File URL: http://ec.europa.eu/economy_finance/publications/publication1970_en.pdf
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    Bibliographic Info

    Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 162.

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    Length: 103 pages
    Date of creation: Jan 2002
    Date of revision:
    Handle: RePEc:euf:ecopap:0162

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    Related research

    Keywords: pension reform; policy reform options; ageing model; Mc Morrow; R�ger;

    References

    References listed on IDEAS
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    1. Andrew B. Abel, 2001. "The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks," American Economic Review, American Economic Association, vol. 91(1), pages 128-148, March.
    2. repec:fth:eeccco:149 is not listed on IDEAS
    3. Mark Gertler, 1997. "Government Debt and Social Security in a Life-Cycle Economy," NBER Working Papers 6000, National Bureau of Economic Research, Inc.
    4. Robin Brooks, 2000. "What Will Happen to Financial Markets When the Baby Boomers Retire?," IMF Working Papers 00/18, International Monetary Fund.
    5. Thai-Thanh Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Publishing.
    6. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters, in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
    7. Heikki Oksanen, 2001. "A Case for Partial Funding of Pensions with an Application to the EU Candidate Countries," CESifo Working Paper Series 466, CESifo Group Munich.
    8. Robin Brooks, 2000. "What Will Happen To Financial Markets When The Baby Boomers Retire?," Computing in Economics and Finance 2000 92, Society for Computational Economics.
    9. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
      • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
    10. Börsch-Supan, Axel & Winter, Joachim, 1999. "Pension reform, savings behavior and corporate governance," Sonderforschungsbereich 504 Publications 99-48, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
    11. R Disney & C Emmerson & M Wakefield, 2001. "Pension reform and saving in Britain," Oxford Review of Economic Policy, Oxford University Press, vol. 17(1), pages 70-94, Spring.
    12. Paul van den Noord & Richard Herd, 1993. "Pension Liabilities in the Seven Major Economies," OECD Economics Department Working Papers 142, OECD Publishing.
    13. Heikki Oksanen, 2001. "A case for partial funding of pensions with an application to the EU Candidate Countries," European Economy - Economic Papers 149, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    14. Andrew B. Abel, 2001. "The Social Security Trust Fund, the Riskless Interest Rate, and Capital Accumulation," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 153-202 National Bureau of Economic Research, Inc.
    15. repec:fth:eeccco:110 is not listed on IDEAS
    16. OR Attanasio & J Banks, 2001. "The assessment: household saving - issues in theory and policy," Oxford Review of Economic Policy, Oxford University Press, vol. 17(1), pages 1-19, Spring.
    17. Robert Holzmann, 1997. "Fiscal Alternatives of Moving from Unfunded to Funded Pensions," OECD Development Centre Working Papers 126, OECD Publishing.
    18. M De Nardi & S Imrohoroglu & TJ Sargent, 2001. "Saving and pension reform in general equilibrium models," Oxford Review of Economic Policy, Oxford University Press, vol. 17(1), pages 20-39, Spring.
    19. David Miles & Allan Timmermann, 1999. "Risk sharing and transition costs in the reform of pension systems in Europe," Economic Policy, CEPR & CES & MSH, vol. 14(29), pages 251-286, October.
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    Citations

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    Cited by:
    1. Erling Holmøy, 2007. "Fiscal sustainability: Must the problem be diminished before we can see it?," Discussion Papers 499, Research Department of Statistics Norway.
    2. Holmøy, Erling & Strøm, Birger, 2013. "Computable General Equilibrium Assessments of Fiscal Sustainability in Norway," Handbook of Computable General Equilibrium Modeling, Elsevier.
    3. Kim Massey Heide & Erling Holmøy & Ingeborg Foldøy Solli & Birger Strøm, 2006. "A welfare state funded by nature and OPEC. A guided tour on Norway's path from an exceptionally impressive to an exceptionally strained fiscal position," Discussion Papers 464, Research Department of Statistics Norway.
    4. E Philip Davis, 2006. "How Will Ageing Affect the Structure of Financial Markets?," RBA Annual Conference Volume, in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia.
    5. Dennis Fredriksen & Kim Massey Heide & Erling Holmøy & Ingeborg Foldøy Solli, 2005. "Macroeconomic effects of proposed pension reforms in Norway," Discussion Papers 417, Research Department of Statistics Norway.
    6. Kieran Mc Morrow & Werner R�ger, 2003. "Economic and financial market consequences of ageing populations," European Economy - Economic Papers 182, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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