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Pension Reform and Labor Market Policies In Central Europe

Pension Reform and Labor Market Policies In Central Europe. Elaine Fultz Senior Specialist in Social Security International Labor Organization Budapest. Older population in Europe is growing rapidly. Over the past 50 years, average life expectancy increase from 63 to 73.

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Pension Reform and Labor Market Policies In Central Europe

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  1. Pension Reform and Labor Market Policies In Central Europe Elaine Fultz Senior Specialist in Social Security International Labor Organization Budapest

  2. Older population in Europe is growing rapidly • Over the past 50 years, average life expectancy increase from 63 to 73. • Is expected to rise to 80 by 2050.

  3. 40 35 30 25 20 15 10 5 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 EU 15 + Iceland, Switzerland, Norway New EU member States South Eastern Europe and Mediterranean Commonwealth of Independent States Proportion of European population 60+ years Source: United Nations projections (2003), as cited in Managing transitions: Governance for decent work, Report of the Director-General, Volume II, ILO: Geneva, 2005.

  4. 12 10 8 6 4 2 0 1950 1955 1960 1965 1970 1975 1985 1990 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 1980 1995 2050 EU 15 + Iceland, Switzerland, Norway New EU member States South Eastern Europe and Mediterranean Commonwealth of Independent States Proportion of European population 80+ years Source: United Nationas projections (2003), as cited inManaging transitions: Governance for decent work, Report of the Director-General, Volume II, ILO: Geneva, 2005.

  5. Labor Market Participation No commensurate increase

  6. Life expectancy at age 60 and average exit age from the labor force Source: EUROSTAT database, as cited in Managing transitions: Governance for decent work, Report of the Director-General, Volume II, ILO: Geneva, 2005.

  7. Life expectancy at age 60 and average exit age from the labor force Source: EUROSTAT database, as cited in Managing transitions: Governance for decent work, Report of the Director-General, Volume II, ILO: Geneva, 2005.

  8. 80 70 60 50 40 30 20 10 0 UK Lux Italy Spain Malta Latvia EU 15 Ireland Austria Poland Finland Greece Estonia France Turkey Portugal Bulgaria Belgium Cyprus Lithuania Sweden Slovenia Hungary Slovakia Denmark Romania Germany Czech R. Netherlands New EU 10 Total Older workers Total and older workers employment rates, 2002 Source: Eurostat (2004), as cited in Managing transitions: Governance for decent work, Report of the Director-General, Volume II, ILO: Geneva, 2005.

  9. Pension reforms in the later 1990s • Increase retirement age • Privatization – “Averting the Old Age Crisis”

  10. Retirement Ages – New EU States

  11. Mixed labor market response • Due to – • Early retirement options • Difficult labor market situation • Social/cultural factors

  12. Pension privatization in the new EU member states

  13. Early difficulties with privatization • Small and undeveloped financial markets • the resulting high investment in government bonds prevents risk diversification • High administrative costs • negative real returns on worker savings • Transitional financing costs • weakened the capacity of pension systems to meet new demands from demographic aging

  14. Transitional financing costs - Poland - Chlon, Agnieszka, "The Polish Pension Reform of 1999," in Fultz, E., Ed., Pension Reform in Central and Eastern Europe, Vol. 1, ILO: Budapest, 2002.

  15. More recent perspective on how to deal with aging: (1) Raise employment rates • EU target: 70 percent for 2010 • 60 percent for women • 50 percent for older workers

  16. Employment rates in 2002 Chlon, Agnieszka, "Funded pensions in the transition economies of Europe and Central Asia: Design and Experience", FIAP, 2004.

  17. 2. Extend working life • European Council (Barcelona) set target for progressive increase of about 5 years by 2010. • Must take account of needs and rights of older people, especially those with poor working conditions, long working lives, and health problems.

  18. 3. Pension reforms • Needed to complement effort to increase employment • Eliminate or reduce incentives for early retirement • Incentives to save more for own retirement • Options for gradual retirement • Other • Address large, sustained transitional deficits from privatization • Reestablish minimum benefits

  19. In Conclusion • Challenges ahead are great • No recipes or standard solutions • Multidisciplinary approach required

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