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1 USLIN JOUNL OF CUIL PCICE VOLUME

2 he usralan Jurnal f cuaral Pracce (JP) he JP s he jurnal f he cuares Insue and s amed a leadng debae n areas where acuares pracse n usrala s as enhance he wrk f pracners and mprve he servce prvded her emplyers, her clens and he cmmuny. he JP wll publsh papers, nes and cmmenary. ll cnen f he JP s subjec a peer revew prcess. he JP wll publsh elecrnc vlumes a leas wce annually. he pnns expressed n he JP are n necessarly hse f he Edral Cmmee, he cuares Insue r he revewers f submssns. he Edral Cmmee, he cuares Insue and revewers f he submssns d n accep any respnsbly fr he pnns r he accuracy f any saemens appearng n he JP. Insue f cuares f usrala 4 he usralan Jurnal f cuaral Pracce s publshed by he Insue f cuares f usrala Level, 5 Carrngn Sree, Sydney NSW usrala 6 () W E [email protected] Edral Cmmee Cln O Hare (Edr), nhny sher, rdge rwne, mhy Kyng, ade Musuln and Davd P Desgn Krk Palmer Desgn ISSN Edral Plcy he fllwng ypes f arcles wll be cnsdered fr publcan: Papers f generally beween, and 5, wrds ha deal wh sme aspec f prfessnal pracce relevan members f he cuares Insue and where he auhr(s) brng nsghs n hw hs aspec culd be mprved r beer nerpreed. Papers may fcus n new applcans f acuaral sklls r n mprvng acuaral pracce n mre radnal areas, n he nerprean and mplemenan f subsanal regulary ssues relevan members and n he applcan f newly develped hery, mehds r echnques frm her dscplnes acuaral wrk. Nes f generally beween 5 and, wrds ha cmmen n maers f neres members f he cuares Insue wh he nenn f brngng members a new dea r undersandng f a pc. Dscussns n publshed papers and nes f beween and 5 wrds. Dscussns can be emaled [email protected] ll submssns he JP are peer revewed. Full gudelnes fr auhrs are avalable frm he cuares Insue. Impran Infrman fr Cnrburs he Edral Cmmee reserves he rgh accep, rejec r reques changes all submssns as well as ed arcles fr lengh, basc synax, grammar, spellng and puncuan. hank Yu evewers he JP reles upn he gdwll and effr f many peple revew papers and nes prr publcan. he Edr s graeful fr he help f he revewers f papers and nes hrughu 4.

3 JP 4 VOLUME CONENS Frm he Edr D COLIN O HE Gues Edr D NHONY SHE PPES 5 he essence f scal secury: debunked myhs D OE L OWN 3 edsrbun and capal marke mpacs f scal secury reremen sysems: prncples and scpe fr acuaral nvlvemen D NHONY SHE Hw shuld he adequacy f pensn cverage be balanced agans fnancal susanably? D KZYSZOF HGEMEJE ND JOHN WOODLL 33 Susanably f he French frs pllar pensn scheme (CNV): assessng aumac balance mechansms D FEDEIC GNNON, D SEPHNE HMYON, ECO FLOENCE LEGOS ND D VINCEN OUZÉ 47 Wha can we learn frm ppulan ras D DOUG NDEWS 55 Susanably f pensn sysems n Eurpe he demgraphc challenge CHIS DYKIN NOES 63 esearch hghlghs frm he Inernanal Cngress f cuares 4 IDGE OWNE

4 USLIN JOUNL OF CUIL PCICE 4 VOLUME FOM HE EDIO s ppulans age and mre ndvduals n ur scey becme dependen n reremen prvsns, w f he key quesns we face as a scey are hese: Hw d we fund fr reremen, and hw shuld he rsks asscaed wh reremen savngs be shared beween he varus sakehlders? s acuares, we have a majr rle play n hs space, n nly due ur lng hsry n he reremen and lfe nsurance areas, bu als because f ur ably ake an unbased and lng-erm vew f he rsks asscaed wh each apprach fundng fr reremen. Whle he edral plcy f he JP s publsh papers f neres pracners, and n ccasns publsh papers frm evens f neres members, hs edn arses frm a cnference arund he acuaral ssues nvlved wh he managemen f reremen and scal secury sysems ha wll be f neres members. Dr Cln OHare PhD, FI, FI, FHE EDIO GUES EDIO D NHONY SHE hs vlume arses frm a dscussn I had wh b rwn a he Inernanal Cngress f cuares n Cape wn n. ne f he sessns, we had made separae presenans n he desgn f scal secury reremen sysems (SSS) and used raher dfferen crera judge her success. We herefre rased he pssbly f sme debae n he fuure. he 3 Pensn enefs and Scal Secury (PSS) Cllquum n Lyn prvded a gd ppruny cnnue he dscussn. PSS cllqua prvde an deal venue fr a hard and careful revew f he majr acuaral challenges n reremen sysems, and hw hey can bes be addressed. he cllqua prvde hese pprunes because hey draw geher a wde range f member acuares, wh a varey f perspecves, general experse n he feld, and dealed knwledge f he mechancs f schemes perang n her wn cunres. Few her fra ffer hese pprunes. In recrung parcpans fr hs vlume, he debae seemed reslve self n a dscussn f balancng mechansms n SSSs. alancng mechansms are mre bvusly requred by defned benef (D) schemes (wheher funded r n), bu defned cnrbun (DC) schemes cann really be sad have slved he prblem. he marke prces f he underlyng asses prvde an aumac balancng mechansm ha s wdely regarded as unsasfacry, n ha penally expses pensners excessve rsk. Nnal defned cnrbun plans (NDC), whch le beween pure D and pure DC schemes, als have sme frm f aumac balancng mechansm, bu wh greaer need fr judgemen. In usrala, he ge Pensn, Medcare and he lng-erm care packages avalable rerees and he elderly als requre mechansms ensure affrdably ver he lng erm. he balancng quesns are fraugh, n jus because hey can be echncally cmplcaed, bu als because hey affec he persnal fnancal neress f every adul. he rle f acuares s n unravellng sme f he cmplexy by quanfyng css and benefs, and denfyng rade-ffs. In rder d s, acuares have n nly make he mechancs cmprehensble, bu als denfy cmpeng neress, beng parcularly aware f her wn persnal neress (bh as parcpans n, and servans f, he sysem) and f he neress f he decsn makers. usralans are perhaps prne beleve ur fully funded DC scheme s superr unfunded D schemes, bu hs belef s n shared unversally. w dfferen ses f myhs abu he fundng quesn were publshed ndependenly abu a decade ag. hey are summarsed and cnrased n he fllwng able.

5 EDIOIL 3 able : w ses f myhs abu reremen fundng Orszag & Sglz () arr () Macrecnmc myhs Myh Indvdual accuns rase nanal savng. Myh 4 Fundng reduces publc pensn spendng. Myh aes f reurn are hgher under ndvdual accuns. Myh 9 Fundng s beer f real reurns exceed real wage grwh. Myh 3 Declnng raes f reurn n pay-as-yu-g sysems reflec fundamenal prblems. Myh Fundng reslves adverse demgraphcs. Myh 4 Invesmen f publc rus funds n eques has n macrecnmc effecs. Myh 3 here s a drec lnk beween fundng and grwh. Myh he nly way pre-fund s hrugh pensn accumulan. Myh 5 Payng ff deb s always gd plcy. Myh 7 Funded pensns dversfy rsk. Mcrecnmc myhs Myh 5 Labur marke ncenves are beer under ndvdual accuns. Myh 6 Funded schemes have beer labur marke ncenve effecs. Myh 6 Defned benef plans necessarly prvde mre f an ncenve rere early. Myh 8 Increased chce s welfare mprvng Myh 7 Cmpen ensures lw admnsrave css under ndvdual accuns. Plcal ecnmy myhs Myh 8 Crrup and neffcen gvernmens prvde a ranale fr ndvdual accuns. Myh Prvae pensns ge gvernmen u f he pensns busness Myh 9 alu plcs are wrse under publc defned benef plans. Myh Invesmen f publc rus funds s always squandered and msmanaged. nher myh ha may be added s he vew ha funded pensns lead mre develped capal markes, and beer allcan f capal. he Kay () revew f UK equy markes and lng-erm decsn makng quesns hese assumpns. Indeed, dubs abu he desrably f he curren sze f he fnancal secr seem be grwng: Phlppn and eshef (3) sugges ha he avalable evdence a presen suggess ha a he very hgh end f fnancal develpmen, rapdly dmnshng scal reurns may have se n. he papers n hs vlume ake sme dfferen perspecves n he ssues. b rwn addresses sme f he myhs and suggess ha DC schemes d n really reslve he prblems wh D schemes, gven he css n erms f ncreased rsks ndvduals, and he pssbly ha gvernmens wll be requred prvde addnal suppr hse wh are lef n relave pvery. In my paper, I aemp respnd by hghlghng he mprance f jusce, and he

6 4 USLIN JOUNL OF CUIL PCICE 4 VOLUME unfarness f many D schemes, and hw hey can be manpulaed by pwerful neres grups. DC schemes a leas avd hese pressures, alhugh ax cncessns prvde pleny f scpe fr lbbyng benefs. he paper by Krzyszf Hagemejer and Jhn Wdall lks parcularly a he vulnerably f he less pwerful when benefs are reduced under fscally necessary, bu unbalanced, mechansms. hs emphass n cverage and adequacy f he mnmum benefs s an mpran cnrbun frm he Inernanal Labur Organzan. w papers lk specfcally a he mechansms f aumac balance mechansms (M). he paper by Frédérc Gannn, Séphane Hamayn, Flrence Legrs and Vncen uzé s an adapan f a paper presened a he cllquum, and prvdes an example f hw an M can be develped ha apples bh benefs and cnrbuns n her case he French SSS. Dug ndrews paper was n presened a he cllquum, bu analyses sme sngle fgure ppulan ras and her applcan he Swedsh M parcularly. Fnally, Chrs Daykn has wren abu he cnrbun ha he cuaral sscan f Eurpe (prevusly he Grupe Cnsulaf) has played n he ngng debae abu he susanably f pensns n Eurpe. Chrs s charman f he sub-cmmee se up n specfcally develp an acuaral cnrbun hs ssue, and he reprs n he sgnfcan prgress f he las w years. he nave prvdes a psve llusran f hw acuares can becme nvlved n publc plcy nvlvng SSS. he papers n hs vlume uch n nly a few ssues, and here s much wrk d. One feld s he need prjec he neracn beween grwng lngevy, ncreasng reremen ages and he changng css f lng-erm care. nher s he desgn f funded benefs, he mpac f ageng n capal markes, and he gvernance f he nvesmens. Ye anher s he desgn f unfunded benefs, her fundng and assurng farness beween dfferen grups, ncludng fuure generans. he challenges he prfessn are ensure ha he necessary daa are clleced; ha ur echncal ables are adequae he analyss f he daa; and ha we have he negry, curage and wsdm nervene n he publc debae n he sde f he publc gd. blgraphy arr, N. (). efrmng pensns: myhs, ruhs and plcy chces. Inernanal Scal Secury evew, 55(): Kay, J. (). he Kay revew f UK equy markes and lng-erm decsn makng. Fnal epr hp:// Orszag, P.., & Sglz, J.E. (). ehnkng pensn refrm: en myhs abu scal secury sysems. In. Hlzmann & J.E., Sglz, New deas abu ld age secury. Wrld ank, Washngn, DC Phlppn,., & eshef,. (3). n nernanal lk a he grwh f mdern fnance. Jurnal f Ecnmc Perspecves, 7(): My hanks g CEP (he C Cenre f Excellence n Ppulan gng and esearch) and he Insue f cuares f usrala fr fnancal suppr fr hs prjec. Dr nhny sher ussc (UC), PhD (Ws), FI, FSS, FI [email protected] Dr nhny sher s sscae Prfessr n he Schl f sk and cuaral Sudes a he Unversy f New Suh Wales n usrala. Hs curren research neress nclude regulan parcularly ssues relaed cmplexy and prfessnal ehcs.

7 5 he essence f scal secury: debunked myhs D OE L OWN SC Dr ber L rwn hs paper aemps fcus he defnn f a scal secury sysem a s ms basc level. In dng s, dscvers a number f ruhs:. PYGO sysems are n remarkably dfferen frm fully funded sysems.. Fully funded sysems are n demgraphcally mmune. 3. Fully funded sysems are n nherenly mre sable han PYGO sysems. 4. he leas desrable desgn fr a scal secury sysem s an ndvdual accun defned cnrbun sysem. JP 4; : 5- KEYWODS scal secury, pensn refrm, ndvdual accuns, defned cnrbun, pay-as-yu-g

8 6 USLIN JOUNL OF CUIL PCICE 4 VOLUME HE ESSENCE OF SOCIL SECUIY scal secury sysem s a scal cnrac ha ses u a prcess decde wha prprn f a cunry s grss nanal prduc (GNP) s elderly resdens can cnsume whu any need fr hem be n he acve wrkfrce. ha s s essence n a macrecnmc level. On a mcrecnmc level s a prcess decde wha prprn f each wrker s upu wll be ransferred s nn-acve elderly ppulan fr her cnsumpn. ha s he enre sry. u, nce undersd, many myhs underlyng day s scal secury plces and prcedures are easly seen be jus ha: myhs. he prmary myh ha hs paper wll debunk s ha a fully funded scal secury sysem s dfferen, and beer han, a pay-as-yu-g (PYGO) scal secury sysem. HOW DIFFEEN IS PY-S-YOU-GO (PYGO) SOCIL SECUIY FOM FULLY FUNDED SOCIL SECUIY? Frs, I acknwledge ha here are an nfne number f alernaves avalable beween purely PYGO scal secury and fully funded scal secury. Hwever, by analysng wha s rue a hese w plar-ppse end pns, we can reslve ms f he suppsed fundng ssues fr sysems n beween. I wll sar wh PYGO fnancng. Ne, frs, ha scal secury needs be fnanced; des n necessarly need be funded. I s benefcal have s fnancng be susanable and sable. d ha may requre carryng sme reserves, bu pure PYGO fnancng s a perfecly accepable mehd f runnng a scal secury sysem. he Samuelsn-arn herem explans ha, n a PYGO sysem, cnrburs earn a rae f reurn equal he grwh g f cvered wages, whle cnrburs n funded sysems earn he rae f reurn r n accumulaed pensn asses (Samuelsn 958; arn 966). Funded pensn sysems are hus mre effcen, n a Pare sense, and prvde hgher pensn paymens fr he same amun f cnrbuns made f and nly f r > g. Oherwse, PYGO fnancng s preferable funded pensn schemes. In a pure PYGO sysem, wrkers frg a ceran amun f ake-hme pay (whch s a prxy fr ably cnsume) by makng cnrbuns he scal secury sysem. ssume a wrker makes a % cnrbun. hs s absluely he same as sayng ha a wrker akes ne half day f prducn and passes ver a rered persn, wh s nrmally n n he wrkfrce, fr hem cnsume. he mney (represenng gds and servces n cnsumed by he wrker) cmes n n he mrnng and ges u n he afernn, allwng fr an equal amun f cnsumpn f gds and servces by he rered. he wrkngs f a fully funded prgram are slghly mre cmplex, bu vrually equvalen. gan, le s assume ur sysem wll requre % cnrbuns frm each wrker be fully funded. Wha happens n hs sysem s ha he wrker frges % f hs r her cnsumpn n rder buy asses (such as scks and bnds) ha are kep n sme safe reremen savngs vehcle managed by sme fnancal nsun (he asses may be hused nernally he scal secury sysem). When he wrker reres, he r she hen lqudaes hese asses, urnng hem n mney buy gds and servces fr cnsumpn. If we lk a hs hrugh a mcrscpe, n a ceran day here are wrkers searchng fr wners f asses (such as scks and bnds) wh wan sell hem fr mney and here are rered peple wh have asses (such as scks and bnds) wh are lkng fr buyers s as ge mney purchase gds and servces. lms dencally he PYGO sysem, he wrker frges cnsumpn (say %) and ransfers mney a rered asse wner acqure hs r her asses. he rered persn, n urn, sells ceran asses ge mney pay fr cnsumpn. u he end resul s dencal. he wrker gves up cnsumpn f a ceran prn f hs r her upu and ransfers he rgh hs cnsumpn a reree. u a quesn may reman: D fully funded scal secury sysems ncrease nanal savngs and hus asss ecnmc grwh? here s a large vlume f classcal leraure addressng hs quesn (see, fr example, arn 98; sa 98; arr 987; Orszag & Sglz ). here s n cnclusve evdence suppr he cnenn ha a fully funded scal secury sysem ncreases nanal savngs. here are w reasns fr hs. ecause ndvduals save hrugh her scal secury sysem, hey may ffse hse dllars f savngs by savng fewer dllars n ndvdual nvesmens. he resul s n ne gan n nanal savngs. Or, f he savngs n he scal secury sysems are ffse by ncreased gvernmen brrwng (whch mgh be expeced he exen ha he asses f he scal secury sysem are gvernmen bnds) hen, agan, here s n ncrease n nanal savngs. hs laer ucme deserves greaer scruny. Cnsder a sysem where he fnancng s have asses backng he sysem (eher parally r fully funded), bu hse asses are all gvernmen bnds. Nw f he cunry s ecnmy s a clsed ecnmy and wrkers are he surce f bh scal secury cnrbuns and ncme axes, hen he mpac n he ecnmy f hs cunry and s wrkers/ prducers s dencal, bh as he sze f he demand fr mney (ha s, frgne cnsumpn) and as he mng f ha demand

9 HE ESSENCE OF SOCIL SECUIY: DEUNKED MYHS 7 fr mney, wheher he sysem s purely PYGO (n asses), r fully funded, r any alernave n beween. I s nly a chce f wheher he wrker pays axes u f hs r her rgh pcke buy back he bnds as needed r wheher he wrker pays cnrbuns he scal secury sysem u f hs r her lef hand pcke. u he sysems are dencal bh as he sze f he cash flw demand and s mng. Nw, f he cunry s ecnmy s n clsed, and f any asses f he scal secury sysem are nvesed ffshre (whch may be dffcul plcally), hen he dfferen fundng mechansms wll n be absluely dencal, bu wll be s clse as nly be f academc neres. Furher, nvesng ffshre creaes currency exchange rsk. Fnally, f ne s wse n nvesng ffshre, ne needs fnd a cunry ha des n have he same demgraphcs as he hme cunry. Oherwse, yu have n mgaed he fundng rsk. 3 E FULLY FUNDED SOCIL SECUIY SYSEMS DEMOGPHICLLY IMMUNE? I s well knwn ha PYGO scal secury sysems cme under fnancng pressures when he ra f rerees he labur frce rses. We can see clearly frm he prevus dscussn, hwever, ha fully funded scal secury sysems are n demgraphcally mmune, as many argue. he aged dependency ra (fen defned as he ra f hse aged 65 and ver hse aged 64) s as mpran a fully funded sysem as s a PYGO sysem. hs ra wll decde hw easy r hard wll be fr wrkers fnd persns ryng lqudae asses (fr example, hse 65) r alernavely hw easy r hard wll be fr he rered fnd buyers f her asses (fr example, hse 65) and hus hw much grss nanal prduc wll be effecvely ransferred. he fallacy ha fully funded sysems are demgraphcally mmune can be explaned hrugh he fallacy f cmpsn. n analgy wll llusrae hs ncely. If yu are an ndvdual a a cncer and yur vew s blcked, yu can see beer f yu sand up. u, f he enre audence sands up, yu are n beer ff. ake an exreme, f here are n wrkers, hen here wll be n prducn f grss nanal prduc. here wll be n cnrbuns a PYGO sysem, bu als n ably sell ne s asses n a fully funded sysem. In shr, here has be prducn f grss nanal prduc befre can be dsrbued. Wealh brngs hgh wages; hgh wages d n brng wealh. Clearly, he bes envrnmen fr a healhy and susanable scal secury sysem s a healhy and grwng ecnmy. deermne he requred cnrbun rae fr a PYGO scal secury sysem, he rae f reurn ha s mplc n he calculan s he grwh rae f he earnngs base n whch cnrbuns are pad. hs s effecvely he rae f grwh f he ecnmy ha, n urn, s a funcn f he grwh rae f he labur frce and he rae f prducvy grwh. deermne he requred cnrbun rae fr a fully funded scal secury sysem, he rae f reurn ha s mplc n he calculan s he rae f reurn n nvesed asses. hus, here wll be mes when a PYGO sysem wll requre lwer cnrbun raes han a fully funded sysem (ms f he secnd half f he las cenury), and here wll be mes when a fully funded sysem wll requre lwer cnrbun raes han a PYGO sysem (ms f he frs half f hs cenury). here s nhng say n advance ha ne sysem s nherenly cheaper han he her. 4 WHICH SYSEM IS MOE VOLILE: PYGO O FULLY FUNDED? s was menned abve, a gal fr a sund scal secury sysem s susanable and sable fnancng. y defnn, are PYGO sysems mre sable r are fully funded sysems? he vlaly n he cs/cnrbuns fr a fully funded sysem wll be he vlaly f he raes f reurn f s nvesed asses. s we all knw, vlaly f nvesmen reurns s very hgh. hey are n hghly predcable even n he relavely shr run (such as en years). hey are ceranly n predcable ver he lnger range. he vlaly n a PYGO sysem s he sze f he wage base upn whch cnrbuns are made. hs s urn depends upn a number f demgraphc and ecnmc varables ncludng he fllwng: ferly raes, mgran raes, labur frce parcpan raes and prducvy mprvemen raes. Lfe expecancy (mraly raes) was n ncluded n hs ls because has an equal mpac n eher r bh PYGO and fully funded sysems. Furher, many sysems have nw nrduced aumac balancng mechansms, whch make hese sysems hghly mmune changes n lfe expecancy (fr a deeper dscussn f aumac balancng mechansms, see Vdal-Mela ). I wuld sugges ha s easer predc he cumulave mpac f he abve ls f demgraphc and ecnmc varables, lng erm, han predc raes f nvesmen reurns n he fuure. he abve demgraphc varables can be nfluenced smewha by gvernmen plcy, and sme shfs n ne varable can ffse unexpeced mves n anher varable (fr example, usng mgran replace nn-brhs). u, cnclude, here s nhng nheren n a sysem beng fully funded ha makes mre sable r mre predcable han a PYGO sysem.

10 8 USLIN JOUNL OF CUIL PCICE 4 VOLUME 5 WH SHOULD WE VOID IN DESIGNING SOCIL SECUIY SYSEM? We have dscvered ha here s n as much f a dfference beween PYGO scal secury sysems versus fully funded sysems as he myhs wuld lead us beleve. ha beng he case, s here any reasn why we shuld care hw he sysems are fnanced? he answer s a defne yes. One mus desgn he fnancng f he sysem n a manner ha absluely mnmses he expense burden n he parcpans and he rsks ha he parcpans mus assume. ha beng he case, becmes rapdly apparen ha he wrs way desgn a scal secury sysem s as an ndvdual accun defned cnrbun sysem. Such a sysem makes a number f assumpns ha are paenly false.. Wrkers are capable f pmal nvesng and asse managemen.. If wrkers are n capable hemselves, hen hey can purchase asse managemen a a very lw expense ra. 3. Wrkers, f gven nvesmen fund pns, wll chse wsely and wll als fllw a lfe-cycle mdel f nvesng where hey slwly mve frm a hgh equy prfl mre fxed ncme as hey near reremen (r, even beer, hey buy deferred annues as hey near reremen). 4. Wrkers can buy ndvdual lfe annues as a far acuaral prce. Each f hese assumpns s false. 5. Wrkers are capable f pmal nvesng and asse managemen Hw can an ndvdual wrker wh has n ranng r educan n busness r ecnmcs be expeced nves wsely and manage her asses prudenly? s Fgure shws, he chce f ne s nvesmen prfl and he mng f he cash flws can clearly have a huge mpac n ne s sandard f lvng upn reremen. In Fgure, we see a replacemen rae as hgh as 9% and as lw as 4%. nd he nly varable s he perd ver whch he ndvdual s wrkng and savng. Clearly, he wrker can decrease he nvesmen rsk by chsng less vlale nvesmens, such as gvernmen bnds. Whle s rue ha he vlaly decreases markedly, s d he replacemen raes, as seen n Fgure. ha s, he wrker has w chces. Inves heavly n scks and face a level f vlaly ha s prbably unaccepable, r nves mre heavly n bnds and fxed-ncme secures and mgae he vlaly rsk, bu guaranee a much lwer sandard f lvng n reremen. he replacemen ras n Fgures and als ndcae he mpac f he mng rsk. hs s he rsk f beng frced lqudae yur asses a depressed values whle als buyng an annuy when neres raes are lw and annuy prces are, herefre, hgh (as n 9). he respnsbly f nvesng and lqudang asses s ne fr whch he average wrker has lle capably. he leraure ndcaes ha f ndvduals are respnsble fr managng her wn capal accumulan, hey d s cnservavely and acheve lwer raes f reurn. Fgure : eplacemen rae baned frm persnal accun savngs f wrkers wh nves slely n scks and cnrbue 4% f annual salary ver 4-year career. Surce: urless (, page 333)

11 HE ESSENCE OF SOCIL SECUIY: DEUNKED MYHS 9 Fgure : eplacemen rae baned frm persnal accun savngs f wrkers wh nves n alernave prfls and cnrbue 4% f annual salary ver a 4-year career. Surce: urless (, page 334) 5. If wrkers are n capable hemselves, hen hey can purchase asse managemen a a very lw expense ra One can legmaely argue ha here are prfessnals wh can be pad manage he funds even n he de-accumulan phase. Whle ha s rue, cmes a a hgh cs. In Canada and he Uned Saes, s n unreasnable assume ha a prfessnal fund manager wll charge % f asses each year as her managemen fee. % per annum fee decreases he ulmae reremen fund (assumng a 35-year experence) by 3.7% (mbachsheer 8; Onar Mnsry f Fnance 4). Lked a n a slghly dfferen manner, able racks he mpac f nvesmen expense ras and shws hw prfundly hey can affec he aggregae pensn benefs and wrkng ncme replacemen ras f rered plan members. he daa assume an annual cnrbun a plan f $, ver 4 years fr a wrker makng $5, per year. Even he hghly regarded usralan superannuan funds have nvesmen expenses rangng frm.8%.9% fr n-fr-prf funds and.3%.73% fr real funds. dd ha peranal expenses f.33%.64% fr n-frprf funds and.7%.7% fr real funds and we have resuls very smlar hse frm Canada and he Uned Saes (Cummngs ). able : Impac f nvesmen expense ras n pensn adequacy Expense ra %.4%.5% 3% 5% ccumulaed value afer 4 years $777, $77, $55, $4, $7, nnual pensn payu $45, $4, $3, $3, $6, eplacemen ra 9% 8% 64% 46% 3% Surces: mbachsheer (8). See als Onar Mnsry f Fnance 4. Munnell e al (3) fund ha: fees have a sgnfcan effec n hw much an ndvdual wll have a reremen. n addnal bass pns ver a 4-year perd reduces fnal asses by abu ne ffh. Many sudes have als shwn ha acvelymanaged funds underperfrm ndex funds, even befre accunng fr he hgher fees charged by he frmer. u brker-sld muual funds perfrm wrs f all. One esmae s ha brker-sld funds underperfrm average acvely-managed sck funds by 3 55 bass pns a year. he prblem s bg because he number f peple rllng ver n Is has ncreased dramacally. he rllver f balances frm 4(k)s Is s exrardnary gven ha parcpans are ypcally passve n her neracns wh her 4(k) plans. hey rarely change her cnrbun rae r rebalance her prfls n respnse marke flucuans r as hey age. Sme husehlds may be araced by he ppruny ban a wder menu f nvesmen pns r cnsldae her accun hldngs. u hers may be seduced by adversemens frm fnancal servce frms urgng parcpans mve her funds u f her ld, red 4(k) plan n a new I.

12 USLIN JOUNL OF CUIL PCICE 4 VOLUME Fnally, f we are gng desgn a defned cnrbun scal secury sysem, a he leas shuld be run as a large, cllecve fund. hs s because sze maers. able : Invesmen fees by sze f pensn fund Sze f pensn fund Indvdual accun Invesmen fees fr large-cap eques 5 3 bass pns $ mlln 6 bass pns $ blln 4 bass pns $ blln 8 35 bass pns Surce: mbachsheer (8). Furher, and mpranly, a large cllecve fund can nves mre wdely han any ndvdual accun, n, fr example, prvae equy r nfrasrucure. hs effecvely gves he wrker a less rsky prfl. 5.3 Wrkers, f gven nvesmen fund pns, wll chse wsely and wll als fllw a lfe-cycle mdel f nvesng where hey slwly mve frm a hgh equy prfl mre fxed ncme as hey near reremen (r, even beer, hey buy deferred annues as hey near reremen) here s n suppr n he leraure fr hs cnenn (see Munnell e al 3). he mre chce f nvesmen funds yu gve fr ndvdual accuns, he mre lkely s ha savngs end up n he defaul pn. In usrala, 8% f parcpans wen he defaul nvesmen pn. hs des n have be ally negave. Fr example, n Sweden, whch nally (998) ffered 456 nvesmen pns, he majry f parcpans ended up n he defaul fund, bu he defaul fund uperfrmed nearly all f he her funds, s he sry ended well. Nr s here any suppr n he leraure fr any evdence ha wrkers use a lfe cycle apprach he managemen f her prfl (Munnell e al 3). Fnally, buyng far marke value lfe annues may be very dffcul. 5.4 Wrkers can buy ndvdual lfe annues a a far acuaral prce When we mve n he de-accumulan phase, he wrker can always manage he lngevy rsk by buyng a lfe annuy. Smple enugh, unl we lk a he cs, especally gven day s very lw neres raes. Hwever, wherever neres raes happen be a a gven mmen, a cnssen cause f he hgh prce f lfe annues s he facr ha he nsurance cmpany mus nclude cver an-selecn (James e al 8). n-selecn ccurs because he nsurance cmpany can never knw as much abu he annuan s healh and lfe expecancy as des he annuan purchaser (he prncple f nfrman asymmery). Under hs prncple, wrkers wh knw hey are n gd healh are mre lkely buy lfe annues r buy larger amuns. hse wh knw hey are n pr healh wll n buy lfe annues a all. hus, he nsurance cmpany mus prce he annuy assumng a fve-sar rsk. ha s, hey prce he annuy assumng he purchaser wll have very hgh lfe expecancy. In ms cunres, here s n rsk classfcan fr annues (excep n exreme cases where he serusly ll r njured can purchase wha are called selemen annues ). hus, he nrm s ha a cal mner wh s ver-wegh and smkes pays he same prce fr an annuy as a nn-smkng schleacher wh jgs. Clearly hey are n equvalen rsks, bu hey are nrmally prced as f hey are bh fve sar applcans. hs has he furher negave mpac f beng regressve. here s clear daa (rwn & Prus 4; Whehuse & Zad 8) ha wealher peple lve lnger. nd hs s n because healher peple make mre mney. I s because f he sably, scalsan and access care ha resul frm wealh and educan (rwn & McDad 3). hus, f yu charge he same rae fr all lfe annues, yu are penalsng he pr wh, mgh be argued, are hse n ms need f beng able ransfer he lngevy rsk. I s hus debaable as wheher a prer wrker shuld annuse a reremen. If he wrker des n buy an annuy, effecvely, hey mus self-annuse. ha s, hey mus deermne a prgram f ncme whdrawal ha s pmal fr hem. Dependng n her desre leave a beques (whch we gnre here), hey wll wan ake u he maxmum ncme pssble whu creang he hrea f ulvng her asses. ha s a l ask. Wh knws her lfe expecancy? nd cverng yur lfe expecancy s n enugh. One wuld be wse cver a leas ne s lfe expecancy plus ne sandard devan. S, f wrkers wan be sure ha hey wll n ulve her asses, hey make cnservave whdrawals. ha means hey lve a a lwer sandard f lvng han s necessary. If hey ake mre aggressve whdrawals, hen hey ncrease he prbably f ulvng her asses and hus becmng dependen n frends and famly, r n gvernmen prgrams fr her cnnued cnsumpn. (hs shuld als be a cncern axpayers wh wll pay hse welfare benefs.) Indvdual accuns als creae a cuner-cyclcal macrecnmc bas. Fr example, when a cunry s ecnmy s h, ne wuld expec asse values rse,

13 HE ESSENCE OF SOCIL SECUIY: DEUNKED MYHS bu als ne wuld expec ncreased demand fr labur. When he sck marke s h, hlders f ndvdual accuns wll see an ably rere and wll hen leave he labur frce, exacly wha he ecnmy des n wan. he reverse hlds when he ecnmy cls. Indvdual accun values g dwn and he accun hlders see ha hey mus reman n he wrkfrce, jus when yu wuld lke hem leave (MacDnald and Carns 7). In shr, n he case f a sysem based n ndvdual accuns where he wrkers nves her funds, nadequae educan f he publc, lack f any smar defaul pn, and nadequae regulan and supervsn f he nvesmen managers may resul n pr nvesmen chces, hgh ransacn css, and hus lwer han expeced ne reurns. cnclude, here appears be lle ecnmc suppr fr ndvdual accuns scal secury reremen sysems (see eae & McGllvray 995; de Mesa, 997; Gll, Packard & Yerm 4; Damnd, 4; Damnd & Orzag 4; Snha & Yanez 8). 6 CONCLUSION hs paper has aemped fcus he defnn f a scal secury sysem a s ms basc level. In dng s, we have dscvered a number f ruhs.. PYGO sysems are n remarkably dfferen frm fully funded sysems.. Fully funded sysems are n demgraphcally mmune. 3. Fully funded sysems are n nherenly mre sable han PYGO sysems. 4. he leas desrable desgn fr a scal secury sysem s an ndvdual accun defned cnrbun sysem. I s he expecan f he auhr ha many f he pns made n hs paper wll prve be cnenus. y debang a wde varey f vewpns, s hped ha ne can all arrve a a mre cmplee undersandng f he essence f scal secury. blgraphy arn, H. (966). he scal nsurance paradx, Canadan Jurnal f Ecnmcs and Plcal Scence, 3(3), arn, H. (98). Ecnmc effecs f scal secury. he rkngs Insue, Washngn, DC. mbachsheer, K. (8). he Canada supplemenary pensn plan (CSPP). C.D. Hwe Insue Cmmenary, N. 65, rn. arr, N. (987). he ecnmcs f he welfare sae. Sanfrd Unversy Press, Sanfrd, Calfrna. eae,., & McGllvray, W. (995). rsky sraegy: reflecns n he Wrld ank epr verng he ld age crss, Inernanal Scal Secury evew, 48(3): 5-. rwn,.l.& McDad, J. (3), Facrs ffecng eremen Mraly. Nrh mercan cuaral Jurnal, 7(): rwn,.l. & Prus, S.G. (4). Scal ransfers and ncme nequaly n ld-age: a mul-nanal perspecve. Nrh mercan cuaral Jurnal, 8,(4): 3-36 urless, G. (). Lessns f he fnancal crss fr he desgn f nanal pensn sysems. CESf Ecnmc Sudes Vl 56(3) Munch Cummngs, J.. (). Effec f fund sze n he perfrmance f usralan superannuan funds. P Wrkng Paper. Sydney, usrala. de Mesa,.. (997). Learnng frm he prvazan f he scal secury pensn sysem n Chle: macrecnmc effecs, lessns and challenges. PhD hess, Unversy f Psburgh. Damnd, P. (4). Scal secury. Presdenal address delvered a he 5h meeng f he mercan Ecnmc sscan, San Deg, C. d/pdf/.57/ ?ckese. Damnd, P., & Orszag, P. (4). summary f Savng scal secury: a balanced apprach. daped exrac frm Peer Damnd & Peer Orszag, Savng scal secury: a balanced apprach. rkngs Insun Press. Washngn, DC. Gll, I.S., Packard,.G., & Yerm, J. (4). Keepng he prmse f scal secury n Lan merca. Sanfrd Unversy Press fr he Wrld ank.edwd Cy, C Hhn, C. (987). Ppulan plces n advanced scees: prnaals and mgran sraeges. Eurpean Jurnal f Ppulan, 3: James, S., Pesand, J., rnld, J., Ilkw, J. (8). he far value f he Canada pensn plan: he rle f rsk and cs srucure. Canada Pensn Plan Invesmen ard, Wrkng Paper, hrd Draf. rn. MacDnald,.J., & Carns,.J.G. (7). he mpac f DC pensn sysems n ppulan dynamcs. () Nrh mercan cuaral Jurnal, [VOL(): Munnell,.H., Webb,. & Vaglan, F.M. (3). Wll regulans reduce I fees wrk? sn Cllege: Cener fr eremen esearch, I#3-. Onar, Mnsry f Fnance. (4). eremen ncme secury. Onar s lng-erm repr n he ecnmy. [Onar Mnsry f Fnance, Queen s Park, rn. Orzag, P.., & Sglz, J.E. (). ehnkng pensn refrm: myhs abu scal secury. In. Hlzmann & J.E. Sglz (eds), new deas abu ld age secury: ward susanable pensn sysems n he s cenury, he Wrld ank, Washngn, DC.

14 USLIN JOUNL OF CUIL PCICE 4 VOLUME sa, J. (98). he wrld crss n scal secury. ransacn Publcans, New runswck, NJ. Samuelsn, P. (958). n exac cnsumpn-lan mdel f neres wh r whu he scal cnrvance f mney. Jurnal f Plcal Ecnmy, 66(6): Snha,., & Yanez, M. (8).a decade f gvernmenmandaed prvaely run pensns n Mexc: wha have we learned? In S. J. Kay and. Snha (eds), Lessns frm Pensn efrm n he mercas, Oxfrd Unversy Press, New Yrk Cy, US. Vdal-Mela, C., del Carmen ad-penas, M. & Seegren, O. (9). umac balance mechansms n pay-as-yu-g pensn sysems. Geneva Papers n sk and Insurance Palgrave Macmllan Whehuse E.., & Zad,. (8). Sc-ecnmc dfferences n mraly: mplcans fr pensns plcy. OECD Publshng N. 7. Pars. Dr ber L rwn PhD FCI, FS, CS, FI (Hns) [email protected] b rered frm he Unversy f Waerl (Canada) prgram n cuaral Scence n afer 39 years. In ha me, b wre seven bks and mre han 5 refereed papers fcusng n he desgn f fnancal secury prgrams n mes f rapdly shfng demgraphcs. b was Presden f he Canadan Insue f cuares n 99 9, f he Scey f cuares n and n 4, f he Inernanal cuaral sscan.

15 3 edsrbun and capal marke mpacs f scal secury reremen sysems: prncples and scpe fr acuaral nvlvemen D NHONY SHE SC Dr nhny sher hs paper n par respnds b rwn s he essence f scal secury: debunked myhs n hs vlume. s n ha paper, scal secury reremen sysems (SSS) refer arrangemens ha prvde nn-labur ncme he elderly. I makes he argumen ha SSS need acuaral mnrng and spells u he prncples ha shuld nfrm such mnrng. he frs w secns denfy and sugges prncples fr addressng he prblemac ssues f ncme redsrbun and he mpac f SSS n capal markes. Secn 3 cnsders he redsrbun mplc n defned benef (D) schemes, and hw acuares shuld play a rle n makng such redsrbun ransparen n bh D and defned cnrbun (DC) arrangemens. Secn 4 suggess ha here s a place fr mre cmprehensve reprng ensure ha he schemes mee her bjecves. he ffh secn cnsders he mpacs f all ypes f SSS n nvesmen markes. here s an bvus acuaral rle n he prjecn f he effec f demgraphc changes, and. a penally enhanced rle n he gvernance f he fnancal sysem and parcularly n much mre nensve daa cllecn and analyss. Secn 6 expands n he pssble rle f acuares n mnrng SSS and secn 7 summarses and cncludes. JP 4; : 3- KEYWODS scal jusce, defned benef, fnancalsan, agng, gvernance

16 4 USLIN JOUNL OF CUIL PCICE 4 VOLUME CUIES ND SOCIL SECUIY EIEMEN SYSEMS (SSS) b rwn argues ha he essence f an SSS s a fnancal ransfer frm wrkers he rered; ha many acceped pnns f he relave mers f funded sysems are myhs; and ha he rsks whch members f ndvdual accun sysems are expsed make hese he wrs f all sysems. u perhaps lke demcracy, he sysem ha seems devlve pwer relavely ncmpeen ndvduals s he wrs f all sysems excep all he hers ha have been red. efre addressng hs quesn, hwever, we have cnsder he w man ses f ssues ha can nerfere wh he essenal funcns f an SSS: he frs s he quesn f hw he redsrbun frm wrkers he rered wll be effeced bh whn and beween generans. In defned benef (D) funds, benefs are n necessarly dsrbued prprnaely cnrbuns wheher r n allwance s made fr he me value f mney. s he dsrbun des n depend n persnal cnsen, requres he pwer f he sae, and ha pwer s always pen abuse and shuld be subjec apprprae versgh. In defned cnrbun (DC) funds, he redsrbun depends n nvesmen chces and he randm effecs f marke mvemens, creang cnsderable vlaly ha rases quesns abu he suably f hese schemes fr prvdng ncmes n reremen. he secnd se f ssues relaes he effecs f he cash flws n he ecnmy generally and n capal markes parcularly. here are penal unnended, and unrecgnsed, cnsequences. hese ssues are f neres acuares as czens, bu members f he prfessn bear a persnal respnsbly because f her nsghs n he mechancs f he sysems and an even greaer respnsbly f hey are drecly nvlved n managemen r versgh. Mrever, he Insue f cuares f usrala self, and n many cunres he acuaral prfessnal bdes, recgnse her respnsbly fr he publc neres. Prfessnal respnsbly ges beynd he scpe f ur prncpals nsrucns: as wh he dcrs Hppcrac Oah, acuares shuld be sure ha we d n harm. he ssues a sake are n jus echncal. Vas amuns f mney are a sake n SSS. Franc e al () recrd ha SSS absrb mre han % f GDP n he Eurpean cunres hey nvesgaed. hey repr dfferen esmaes f he presen values f hese lables as mulples f GDP. I s dffcul apprach dscussn f such large amuns dspassnaely, even mre s as everyne s persnally affeced fnancally n ne way r anher. Hwever cmplex and plcally fraugh, can be argued ha he managemen f SSS s jus he sandard acuaral prblem wr large n a nanal scale. alancng nflws wh uflws, and allcang css and he benefs equably are fundamenal all nsurance and reremen schemes. Where he arrangemens are subjec he dscplne f a cmpeve marke, quesns f equy can be replaced by hse f ecnmc vably bu, n bh cases, he use f he acuaral lk s nvaluable. he rle f acuares s develp and mplemen he echnques requred manage fnancal secury sysems. We denfy and measure he key drvng nfluences and prjec hem as bes we can. EDISIUION ND JUSICE edsrbun s a zer sum game and dfferen pares are lkely defend, r seek exend, her shares wheher r n hey are jusfed n dng s. In argung her psn, pares may appeal he need fr greaer equaly, mre effcency, a fcus n he pres r fr a clser relanshp beween he value f cnrbuns and benefs (whch he ecnmss fen call acuaral equy a erm ha I shall use here). I sugges ha recnclng hese legmae, bu cnflcng, bjecves s a funcn f he prncple f jusce (r equy). I make a mre dealed defence f s applcan scal secury sysems n sher (). In essence, seems me ha jusce requres a balancng f dfferen crera, whch n he cnex f redsrbun are as fllws: here shuld be equaly f reamen: hrznally, n ha peple wh he same characerscs shuld be reaed n he same way; and vercally, n ha he reamen f peple wh dfferen characerscs shuld be prprnal her dfferences. Equaly f ucmes s desrable because all peple are equal. Peple s needs fr pvery relef r nsurance agans lngevy rsks shuld be cnsdered Schemes shuld be acuarally equable. Peple wh have cnrbued mre have a real clam hgher benefs based n realsc assumpns and far neres raes. Gvernmens shuld n nerfere whu gd cause n any aspec f her czens lves, and s cmpulsry membershp f reremen sysems needs gd jusfcan. N nly shuld ndvduals be gven as much lbery as pssble, he accmpanyng prncple f subsdary s

17 EDISIUION ND CPIL MKE IMPCS OF SOCIL SECUIY EIEMEN SYSEMS 5 ha pwer shuld be devlved he lwes lcal level cnssen wh meeng he sysem s bjecves. Effcency shuld als be cnsdered. cuares are n expers n quesns f jusce r redsrbun, and seems me ha here s a gd argumen fr argung ha hese are demcrac chces. he her prfessnal expers n hs feld (phlsphers and lawyers, fr nsance) are, hwever, less cncerned abu precse ucmes han abu he jusce f he prcess and he need cnsder he full range f sakehlders and crera lsed abve. cuares can use her undersandng f he mechancs f SSS and f her redsrbuve mechansms (ax and means ess especally) nfrm publc debae; as members f he publc, acuares are als enled parcpae (as lng as her persnal neress are denfed and dsclsed). Wllams (997) prvdes a warnng: here s a regreable endency fr equy argumens be cnduced whn a rhercal framewrk n whch appears pssble d gd a n ppruny cs whaever. I generaes a grea deal f rgheus self-sasfacn fr he rmanc escapss and pus ecnmss back n he rle f he dsmal scenss always sressng he sacrfces, bu des n help he hard-pressed decsn-makers wh grapple wh he ssues n real-lfe every day... [we need]... brng hme he fac ha gvng prry ne grup nevably dsadvanages hers, a cnsequence whch many advcaes f parcular equy prncples fal make clear (and hey rarely sae wh wll be called upn make wha sr f sacrfce even when hey d acknwledge hs mplcan). (8) cuares may have play he rle f dsmal scenss: we d need denfy wnners and lsers. 3 D ENEFI IOS E OPQUE ND CN E MNIPULED In parcular, he manner n whch D schemes lead redsrbun needs be explaned by acuares. If acuaral equy s a prncple, hen s f sme cncern ha he nernal raes f reurn baned by ndvduals n D schemes are arbrarly deermned. he rgnal rules were fen based n smple, and herefre racable, frmulae ha were easy admnser n a pre-cmpuersed envrnmen. I can, hwever, be suspeced ha hey were adped because f her beng ha much mre aracve wealher and mre nfluenal grups f members. 3. Lngevy In he frs place, wealher grups lve lnger and ban benefs fr lnger. Whle b rwn s crrec ha sme annuy markes can be crcsed n ha hey d n allw fr sc-ecnmc mraly dfferenals, here s nvarably n dsncn whn prvae and publc D schemes. Sme DC arrangemens allw hse wh lwer lfe expecances p u f he crss subsdes, bu a leas n he UK, nsurers nw ffer enhanced annuy raes hse wh lwer lfe expecancy. he crss-subsdy he wealhy has lng been recgnsed, fr example, n ne f rwn s papers (998), bu as he shws, he crss subsdy s fen mre han cmpensaed by greaer scal benefs lwer ncme ndvduals. I wuld sugges, hwever, ha he exen f he crss subsdes needs be cnnually mnred ensure ha here s n benef creep a he expense f prer and fen less vcal members f he SSS. 3. Dfferen raes f salary ncrease Less fen recgnsed s he fac ha greaer wegh s nvarably gven laer years f ncme n he deermnan f benefs. hs s n nly rue fr fnal average schemes, bu als fr career average arrangemens revalued by an nflan rae lwer han he average rae f salary grwh. Wrkers frm lwer scecnmc grups have a flaer wage prfle han hse wh hgher ncmes, and herefre her cnrbuns he SSS a earler ages have mre me earn a reurn. he same flaer salary scales apply hse wh suffer frm ll healh laer n her wrkng lves. h grups are n lkely be well represened amngs decsn makers and may be n be adequaely cmpensaed by her means. Kaye (985) reprs sme calculans by Davd Wlke, whch sugges ha jus % a year ncrease n salary relave he average wll yeld a pensn wrh 5% mre han he average. Crnad e al () fnd ha, under ceran assumpns, he US sysem can be seen as regressve even wh apparenly sgnfcan nn-earnngs relaed benefs. hs parcular crss subsdy wuld appear need greaer mnrng. 3.3 Demgraphc change One culd desgn PYGO schemes s ha he ras beween cnrbuns and benefs are based n a mre r less cnsan real reurn. Nnal defned cnrbun (NDC) funds fall n hs caegry. Mre frequen are schemes where he cnrbuns r he

18 6 USLIN JOUNL OF CUIL PCICE 4 VOLUME benefs are adjused wh demgraphc change s ha he reurn each generan s dependen n he rae f grwh f he ppulan and changes lngevy. he adjusmens he benefs and cnrbuns wheher based n rules r n ad hc changes requre sme jusfcan. Such jusfcans requre very careful analyss as he changes may herwse mpse unfar burdens n dfferen grups and gve unjusfable wndfalls hers. One mgh respnd by sayng, as ber Myers (998) dd n a respnse rwn (998), ha he raes f reurn r mney s wrh ras are n relevan he purpse f SSS, whch are mee ecnmc and scal needs n reremen and are based n sldary. Sldary s n acheved hwever by panderng he neress f pwerful grups, nr by expsng he sysem srucural srans ha may requre raumac adjusmens. hese argumens apply parcularly cnrbury D schemes, bu are als relevan fla-rae schemes such as he usralan ge Pensn. hey are bvusly prgressve, parcularly f hey are means esed, bu hgher ages f enlemen can sgnfcanly reduce he benefs lwer sc-ecnmc grups, wh have lwer lfe expecancy. Whaever he desgn, regular acuaral mnrng seems be mpran ensure balance and equy. 4 DC SCHEMES E VOLILE cuares can als hghlgh he randm redsrbun creaed by DC schemes. Whle DC arrangemens bjecvely allcae benefs, funds nvesed n equy markes prduce very vlale resuls. rwn makes he case ha he range f replacemen ras prvded by DC schemes s exreme. (He shws ha hey wuld have vared by a facr f alms 6 ver he pas cenury n he US). Cannn and nks (3) cnfrm hs fr 6 cunres n he OECD ver he same perd. h ses f calculans, hwever, shw ha nvesmen n equy markes wuld nvarably have uperfrmed nvesmen n bnd markes smemes sgnfcanly. I culd be argued ha an ecnmcally neural D r NDC scheme shuld gve a reurn n cnrbuns equal ha f gvernmen bnds. he benefs f a DC arrangemen nvesed n eques are vlale, bu he vlaly fr he members appears, a frs sgh, be alms all n he upsde. number f ecnmss and hers have used hese facs argue fr a swch DC arrangemens. Feldsen and Lebman () prvde a gd summary f he ssues and argumens. One underlyng assumpn s ha prvae markes wll allcae capal mre effecvely and ha sae cnrl ver cmpanes and nvesmen prjecs shuld be avded f pssble. Engelen (3) suggess ha hs assumpn may be based n a based and verpmsc vew f he sze f he equy rsk premum. (See Damdaran () fr evdence f cnsderable verpmsm amngs academc ecnmss n he 99s parcularly.) he upsde f DC schemes can als appear hgher because he reurn n gvernmen bnds s fen arfcally depressed. enhar e al () prvde evdence ha he neres rae n gvernmen brrwng has been arfcally depressed fr a large par f he pas cenury as par f a sraegy f fnancal repressn reduce he sze f he deb. Even n nrmal mes, he shrer erm gvernmen deb held by banks s held largely fr lqudy purpses and s n a gd measure f he reurns n capal n scey. Insurers and reremen funds may als hld lnger erm gvernmen deb fr regulary reasns raher han as pure nvesmens, whch may als lead arfcally lwer reurns. rfcally lwer reurns n gvernmen deb helps explan he puzzle ha equy rsk premums are large be explaned by rsk aversn alne. Even allwng fr versaemen, he argumens fr nvesmen freedm and he exsence f a smaller bu sll sgnfcan equy rsk premum d sugges ha here s sme rle fr DC arrangemens wh nvesmen freedm. rwn, hwever, makes he wdely acceped pn ha much freedm parcularly f members are encuraged have ndvdual accuns leads hgher expense charges and pr nvesmen decsns. hs prvdes an argumen fr grup schemes wh sensble nvesmen defaul pns, whch acuares are well placed desgn. he ssues f balance and equy ha are mpran n D schemes are replaced n DC arrangemens by ssues f expense managemen and nvesmen sraegy, as well as ssues f fnancal plannng, such as hw much save, he reremen dae and annusan. hese calculans are n pecularly acuaral sklls, bu acuares are already prvdng advce he managers f hese funds and are able make mpran cnrbuns n hs area. he area des appear be underservced currenly and culd perhaps benef frm he develpmen f nernanal acuaral sandards. 5 MNDOY CONIUIONS DISO INVESMEN MKES cuares can als cmmen n he drec and ndrec mpacs f demgraphc change n all he pllars f an SSS n nvesmen markes. purs free marke vew wuld hld ha bh PYGO and cmpulsry funded schemes dsr wha wuld be a naural capal marke. In he absence f any gvernmen SSS, peple

19 EDISIUION ND CPIL MKE IMPCS OF SOCIL SECUIY EIEMEN SYSEMS 7 wuld naurally save smehng fr reremen and ne wuld expec he develpmen f a capal marke allcae hese savngs he ms prducve nvesmens. hse hldng hs free marke vew wuld argue ha free capal markes wll allcae nvesmens mre effcenly han f hey are crwded u by large PYGO schemes r dsred by arfcally smulaed funded schemes (eher by cmpulsn r ax cncessns). One culd g furher and argue ha he laer may als dsr effcen markes by drvng asse prces up and nvesmen reurns dwn. Few ake hs purs vew; hse wh d adp he vew appear be acng as lbbyss fr a larger fnancal secr. McGraan and Presc (3), fr nsance, argue ha all axes n nvesmen ncme dsr decsn makng and shuld be remved, ha a mandaed reremen sysem wh nvesmen freedm wuld dramacally ncrease welfare and ha: Mandary savngs and nsurance, whch are n bndng fr ms peple, d n dsr he labrlesure and nerempral cnsumpn chces. hey d vercme sme f he prblem f sme peple n savng fr reremen and relyng n hers fr fnancng her reremen cnsumpn. Underlyng her mdel, and all he argumens fr mre fundng, are hghly speculave cunerfacual assumpns abu he prducvy f nvesmen assumng ha nvesmen reurns n prvae markes wll grealy uperfrm hse n he publc secr and ha members f SSS wll be able enjy such benefs. hese assumpns are bvusly debaable and wuld appear be clured by an neres n a large fnancal secr. s parcpans n he secr, acuares shuld be aware f he pssbles ha ur vews can be smlarly clured. 5. Fnancalsan Fnancalsan has been used descrbe hs clurng f he hnkng f hse n he fnancal secr parcularly. number f bservers see he ncreased fundng f SSS as cnrbung arfcally he grwh f he fnance ndusry, bh delgcally and n s share f GNP. Ousde he fnance ndusry, hs grwh can be vewed wh sme alarm as cnrbung bh nequaly f ncmes and greaer speculan. Engelen (3) refers ncreasngly speculave behavur and a franc search fr fnancal nnvans. dar urner (9), hen head f he UK Fnancal Servces uhry, akes a smlar vew: nd, ndeed, here are gd reasns fr belevng ha he fnancal ndusry, mre han any her secr f he ecnmy, has an ably generae unnecessary demand fr s wn servces ha mre radng and mre fnancal nnvan can under sme crcumsances creae harmful vlaly agans whch cusmers have hedge, creang mre demand fr radng lqudy and nnvave prducs; ha pars f he fnancal servces ndusry have a unque ably arac hemselves unnecessarly hgh reurns and creae nsably whch harms he res f scey. here are her reasns fr he grwh f he fnancal secr, and here s evdence ha cnrbues ecnmc develpmen. Phlppn (7), fr nsance, fnds he grwh arses raher frm echnlgcal change n ha grwng frms n he las 3 years have requred mre usde capal han prevusly. ajan and Zngales (3) dcumen he cnrbun ecnmc develpmen, bu ne he rle f prvae neres grups n bsrucng develpmen n varus cunres f he wrld durng he weneh cenury. hey sugges ha ne way f lmng he pwer f such neres grups s publc awareness f he hdden css f plces ha sensbly prme ecnmc sably. Mre cncernng s he relavely nvsble nercnnecedness f he sysem. Val e al () were able nvesgae he wnershp and cnrl f 43, rans-nanal cmpanes and fund ha nearly 4/ f he cnrl ver he ecnmc value f NCs n he wrld s held, va a cmplcaed web f wnershp relans, by a grup f 47 NCs n he cre, whch has alms full cnrl ver self. he auhrs pn u he sysemc rsks ha such nercnnecvy creaes. esuls lke hers als sugges he pssbly f usng he greaer daa prcessng pwer nw avalable beer undersand and mnr hese rsks. Farmer e al () ulne a vsn fr an ambus prgram undersand he ecnmy and fnancal markes as a cmplex evlvng sysem f cupled newrks f neracng agens. hey envsage he use f exsng mcr-daa n husehlds, frms and parcularly fnancal ransacns (ha s currenly n clleced and analysed) prduce frecasng ls. I seems me ha he mplemenan f such mdels s a funcn fr whch acuares are well sued. Whle he mdels wuld be expensve creae and run, he css wuld be a mnue prprn f he amuns beng managed, and wuld jusfy he crean f sgnfcan acuaral funcns whn gvernmen.

20 8 USLIN JOUNL OF CUIL PCICE 4 VOLUME hs s a lng-erm gal. In he shrer run, furher hugh can be gven ensurng greaer dlgence n he selecn f nvesmens and nvlvemen n he crprae gvernance f he cmpanes n whch shares are held. Clark and Hebb (4) suggesed ha here was a rend wards mre acve reremen fund managemen, and here may be evdence ha hs cnnues wh scal and envrnmenal nvesmen managemen prncples beng mre wdely acceped. cuares nvlved n he gvernance f reremen schemes wll nevably be nvlved. he Insue f cuares f usrala has denfed nvesmen advce and gvernance as a cre capably f acuares (cuares Insue, ), and s here wuld seem be suppr fr furher develpmen f acuaral sklls and sandards n hs area. 5. Demgraphc dsrns nher dsrn ha can arse s ha, as a ppulan begns age, mre asses are acqured by pensn funds, pushng asse prces hgher bu f agng cnnues and ppulans declne, dssavng reduces asse prces as recgnsed ms clearly n Japan (Nshmura ). I seems ha, when here s an abundance f savngs, neres raes can be pushed very lw and even becme negave, s requrng mre savngs (ceranly wh mached D schemes), creang furher pressure n neres raes. hs dsrn can arse wheher he SSS s funded r n. If cnrbuns exceed benefs emprarly, hen he surplus needs be dspsed f r nvesed. hs apples bvusly prvaely managed DC accuns. If a PYGO scheme has n explc asses, hen he surplus s effecvely len he sae. Gvernmens may use he mney n a varey f ways. In bh cases, here s a rsk ha he addnal mney s beng aken frm cnsumpn and used bd up he prce f exsng asses. Is such an ncrease n asse prces unavdable? rkeland and Presc (7) calculaed ha he asses requred fund a SSS n he US (wh s parcular demgraphc and nvesmen cndns) wuld amun sme fve mes GNP. hs wuld exceed he avalable asses and s wuld requre gvernmen creae addnal gvernmen brrwng r creae asse prce nflan. McGraan and Presc (3), hwever, argue ha f ne ncludes he value f all land and nangble busness asses, he asse markes are bg enugh prvde he base fr a funded SSS. Whaever he herecal pssbles, des seem ha funded schemes are vulnerable capal marke enhusasms ha can hrw unseemly amuns f mney a pr nvesmens. hs has been llusraed recenly by he echnlgy bubble a he urn f he cenury and he US husng bubble and s asscaed dervave nsrumens ha led he fnancal crss f 8. Wuld he excesses be mgaed f here were greaer awareness f he sze and drecn f demgraphcally gverned cash flws? I des seem me ha, n a scenfc age when we have a huge capacy measure and manage, ur nanal ecnmc sascs culd be cnsderably mre dealed. hey shuld nclude prjecns f cash flws n and u f he fnancal secr, allwng gvernmens and nvesrs adjus her capal spendng accrdngly. 6 PCICL CUIL INVOLVEMEN IN MNGING SOCIL SECUIY SYSEM? rwn s n alne n recmmendng a mul-pllared SSS ha ncludes a prvsn fr basc needs and hen sme, and perhaps an elemen f nvesmen smhng fr wealher pensners wh parcpae n an earnngsrelaed cmpnen. Such a sysem mus nclude a cenrally managed cmpnen f s have a redsrbuve funcn. he argumen f secn 3 s ha he redsrbun needs be subjec nense and ngng scruny, r wll be expled by pwerful grups. I dub wheher s pssble develp rules fr redsrbun ha wll be rbus enugh n requre adapan ver me. I seems necessary deermne, regularly, he exen f he redsrbun, bh whn and beween generans, and he relave needs f benefcares and cnrburs. I beleve gvernmen reasury r fnance deparmens shuld have he acuaral resurces cllec he necessary daa, and perfrm and publsh hese analyses. Franc e al () make sme suggesns as hw hs culd be dne, alhugh hey d n seem apprecae ha ms f he wrk s f a largely acuaral naure. Inernanal sandards culd perhaps be develped se u apprprae assumpns and mehdlges. he sandards culd perhaps nclude he fllwng. Measuremen mus be regular: rennally befre cmpuers, bu nw a leas annually. he reprs shuld cver: he al lables f he SSS (all relevan elemens, r pllars) and he accrual ver he pas year n al and by dsngushable grups f benefcares he asses avalable pay he lables, ncludng fuure cnrbuns, gvernmen axes, and he reurns ver he perd he emergng css, shwng he exen whch cash flws frm he asses (ncludng envsaged sales) wll mee cash flws frm he lables changes he assumpns and mdels, and he

21 EDISIUION ND CPIL MKE IMPCS OF SOCIL SECUIY EIEMEN SYSEMS 9 fnancal mplcans fr fuure esmaes crss subsdes frm ne grup anher, wh a parcular fcus n he labur marke dsrns creaed (such as resrcns n changng jbs and cunres, and early r lae reremen). cuares make recmmendans as levels f premums, cnrbuns r benefs ha mus necessarly be deermned he las cen, n he full knwledge ha anher apprach mgh lead sgnfcan dfferences n he recmmendan. Such recmmendans requre acuaral judgemen: here s n sngle rgh answer, bu here are pssbly a number f wrng r bad answers. Falure address hw scheme defcs shuld be crreced, by seng u apprprae balancng mechansms, s alms always wrng. he sysem shuld als nclude a funded DC elemen. he prncple f subsdary wuld sugges ha such funds shuld n be cenralsed, bu shuld be large enugh ban benefs f scale. cuares wuld play a dfferen rle n such DC schemes. I seems me ha hey culd prvde a regular repr he managemen f he fund ha wuld cver: fnancal sundness and he managemen f rsks an analyss f nvesmen perfrmance and expenses wheher dscrenary allcans f expenses and benefs were apprprae wheher member prducs and servces and parcularly fnancal advce reman apprprae. 7 SUMMY ND CONCLUSION I seems me ha he myhs whch rwn refers are based n msaken assumpns and delgcal pre-cncepns cmpunded by prvae neress, frm whch we need, as acuares, denfy and dsance urselves. s prfessnals wh a deep undersandng f he mechancs f SSS peran and a cmmmen he publc neres, acuares can and shuld prvde all sakehlders wh clear nfrman ha allws hem make nfrmed decsns abu quesns f redsrbun, wheher nra- r ner-generanally. Fr DC funds, parcularly, we shuld be advsng n he managemen f persnal rsk and n fnancal perfrmance. he mpac f SSS n nvesmen markes s n sme ways an unnended by-prduc f her peran raher han her desgn. cuares culd play a greaer rle by carryng u mre dealed prjecns f cash flws and n her gvernance n nvesmen markes. In all hese cases, mdern echnlgcal develpmens d allw fr he cllecn f mre mcr-daa ha can be frufully used creae beer acuaral mdels. Gvernmens shuld cnrbue he cllecn f such daa and shuld develp acuaral capables perfrm hese analyses. blgraphy sher,. (). Innvan and mperaves n fnancal secury sysems. Paper presened he Inernanal Cngress f cuares hp:// fnal_paper_sher.pdf rkeland, K. & Presc, E.C. (7). On he needed quany f gvernmen deb. Federal eserve ank f Mnneapls Quarerly evew 3(): -5. rwn,.l. (998). Scal secury: regressve r prgressve? Nrh mercan cuaral Jurnal, (): -3. Cannn, E., & nks, I. (3). he value and rsk f defned cnrbun pensn schemes: nernanal evdence. Jurnal f sk and Insurance, 8(): Clark, G.L., & Hebb,. (4). Pensn fund crprae engagemen: he ffh sage f capalsm. elans ndusrelles, 59(): 4-7. Clark, G. L., & Hebb,. (5). Why shuld hey care? he rle f nsunal nvesrs n he marke fr crprae glbal respnsbly. Envrnmen and Plannng, 37(): 5-3. Crnad, J. L., Fullern, D., & Glass,. (). he prgressvy f scal secury. he E Jurnal f Ecnmc nalyss & Plcy, (): hp://wrks.bepress.cm/ dn_fullern/ Damdaran,. (). Equy rsk premums (EP):deermnans, esman and mplcans he edn. hp://pages.sern.nyu.edu/~adamdar Engelen, E. (3). he lgc f fundng Eurpean pensn resrucurng and he dangers f fnancalsan. Envrnmen and Plannng, 35(8): Farmer, J.D., Gallega, M., Hmmes, C., Krman,., Ormerd,P., Cnc, S., Sanchez,. & Helbng, D. (). cmplex sysems apprach cnsrucng beer mdels fr managng fnancal markes and he ecnmy. Eurpean Physcs Jurnal Specal pcs, 4(): Feldsen, M., & Lebman, J.. (). Scal secury. Chaper 4 Handbk f publc ecnmcs, Feldsen, M., & uerbach,. J. (Eds.),Vl 4: 45-34, Elsever. Franc, D., Marn, M.., & Zer, S. (6). Pensn expendure prjecns, pensn lables and Eurpean Unn fscal rules. Fscal ndcars, anca d Iala, me. Insue f cuares f usrala (). cuaral capables fr he fuure. hp:// au/lbrary/educan/oher%educan// cuaralcapablesfrhefuure.pdf Kaye, G. (985). pcal pensn prblems (a persnal vervew). Jurnal f he Sudens Scey, 8: McGraan, E.., & Presc, E.C. (3). On fnancng reremen wh an agng ppulan. Wrkng Paper 876, Nanal ureau f Ecnmc esearch hp:// rg/papers.hml

22 USLIN JOUNL OF CUIL PCICE 4 VOLUME Meyers,.J. (998). espnse rwn,.l. (998). Scal secury: regressve r prgressve? Nrh mercan cuaral Jurnal, (): 8-3. Nshmura, K.G. (). Ppulan ageng, macrecnmc crss and plcy challenges. Paper presened a he 75h nnversary Cnference f Keynes General hery, Unversy f Cambrdge. hp:// /en/ annuncemens/press/ken_/daa/k6a.pdf Phlppn,. (7). Why has he US fnancal secr grwn s much? he rle f crprae fnance, Wrkng Paper 345, Nanal ureau f Ecnmc esearch hp:// rg/papers.hml. ajan,.g., & Zngales, L. (3). he grea reversals: he plcs f fnancal develpmen n he weneh cenury. Jurnal f Fnancal Ecnmcs, 69(): 5-5. enhar, C.M., Krkegaard, J.F. & Sbranca, M. (). Fnancal epressn edux. IMF Fnance and Develpmen, 48(): -6. urner,. (9). Mansn Huse speech. hp:// uk/lbrary/cmmuncan/speeches/9/9_a.shml Val, S., Glafelder, J.. & asn, S. (). he newrk f glbal crprae cnrl. PLOS ONE, 6():e5995. Wllams,. (997). Inergeneranal equy: an explran f he far nnngs argumen. Healh Ecnmcs, 6():. Dr nhny sher ussc (UC), PhD (Ws), FI, FSS, FI [email protected] Dr nhny sher s sscae Prfessr n he Schl f sk and cuaral Sudes a he Unversy f New Suh Wales n usrala. Hs curren research neress nclude regulan parcularly ssues relaed cmplexy and prfessnal ehcs.

23 Hw shuld he adequacy f pensn cverage be balanced agans fnancal susanably? D KZYSZOF HGEMEJE ND JOHN WOODLL SC Dr Krzyszf Hagemejer Jhn Wdall In recen decades many cunres have refrmed her cnrbury pensn schemes, generally srenghenng he lnks beween benef enlemens and he cnrbuns pad ver members wrkng lfemes, bu prmarly seekng (re)balance hem fnancally, n he face f srans arsng frm unfavurable labur marke r demgraphc cndns. he resul has been reduced benef enlemens and levels f cverage, hwever assessed. he mpac has been fel, parcularly, by hse wh shrer, brken careers (due fr example lnger spells f unemplymen, precarus emplymen, r famly care respnsbles) and wh lw levels f lfeme earnngs. Cunres have nrduced aumac mechansms whch reduce benefs, bu whu cunervalng mechansms preven hem frm fallng belw pvery levels. Quesns arse, herefre, as hw he adequacy f cverage and benef levels may be secured, hw he nncnrbury elemens f pensn sysems shuld be srenghened, and hw much rm s lef plcy dscren when aumac balancng resuls n scally undesred ucmes. he ssues are llusraed fr he cunres f he Eurpean Unn, where exensve sascal daa are avalable, bu are mpran glbally. Clearly, acuares mus play a key rle n prvdng he relevan quanave assessmens, and sme quesns are rased as he naure f her respnsbles. JP 4; : -3 KEYWODS scal secury, pensns, pvery, demgraphc ageng

24 USLIN JOUNL OF CUIL PCICE 4 VOLUME INODUCION he quesn f he adequacy f pensn prvsn, hrugh he very dverse nanal sysems exsng n cunres arund he wrld, s ne f grea pcal neres. Cncern s all he greaer n he lgh, n nly f he fnancal and ecnmc srans experenced n many cunres n recen years, bu als f he lnger-recgnsed ssues f ncreasng lngevy and laer reremen ages. In addn he respnses refleced n nanal plcy-makng, varus regnal and glbal agences have sugh deeper undersandng f he ssues; such naves nclude he esablshmen f he Wrkng Grup n geng Ppulans and Susanably (WG) f he EU Ecnmc Plcy Cmmee, he Wrkng Grup n geng (SPC-WG- GE) f he EU Scal Precn Cmmee, and a ask Frce cnvened mre recenly by he cuaral sscan f Eurpe (E). hs arcle has s rgns n he Scal Secury Deparmen (nw re-named he Scal Precn Deparmen) f he Inernanal Labur Offce, where he subjec f he adequacy f pensns, alng wh her benefs prvded under scal secury, has been ne f fundamenal cncern fr many decades. he nvan f he Pensn, enefs and Scal Secury (PSS) branch f he Inernanal cuaral sscan, n advance f he Cllquum held by he I n Lyn, France n June 3, Krzyszf Hagemejer auhred, and Jhn Wdall presened a he Cllquum, a paper n hs pc, enled Hw balance adequacy f cverage wh fnancal susanably? (Hagemejer 3). In large par, he presen arcle cmprses he subsanve maeral f ha paper, whle akng he ppruny make, s hped, a few small clarfcans. In addn, hwever, he ppruny s als aken add sme bservans reflecng he cnex n whch he paper was dscussed a he Lyn Cllquum. aken geher wh a number f her papers, a sgnfcan heme f he presenan was he way n whch acuares, whse rle n esablshng he fnancal balance f a pensn r any her scal secury scheme s bvusly crucal, cncepualse her respnsbles he mulple sakehlders n such schemes. I s hped, hus, prvde, whu suggesng cncree answers, sme fd fr hugh n relan hese ssues. he vews and perspecves presened here are hse f he auhrs persnally, and shuld n be arbued he Inernanal Labur Offce r any her rgansan; respnsbly fr any facual errrs als ress, f curse, wh he auhrs. EIEMEN prvde a suable cnex fr he dscussn, we begn wh sme bservans cncernng reremen nng ha dscussn f hs pc may well be smewha cnfunded by he smemes ndscrmnae use f he wrd mean bh he even f ceasng wrk n a parcular day and an ndvdual s nn-wrkng saus subsequenly. he desgns and shapes f pensn sysems are usually he resul f scal cnracs, whch may be mre r less explc n characer. Scees wll effecvely defne her bjecves hrugh an ngng debae, self explc r mplc, arund a se f quesns, f whch he ms mpran are lkely be: Wha shuld reremen (as a saus) represen: smply he cndn f a persn wh s n lnger able wrk, r raher a welldeserved perd f res afer wrkng lfe (r a mre nuanced cncep)? wha age, afer hw many years f a wrkng career, r afer wha prprn f a full (expeced) wrkng lfeme shuld reremen (as an even) ypcally ake place? Wha level f guaranee s seen as apprprae by he scey as a whle as represenng an adequae guaranee s elderly members shuld hs cmprse nly he allevan f pvery fr hse unable suppr hemselves, a (defned) mnmum ncme fr all resdens n ld-age, r a guaraneed level f replacemen raes (as a prprn f pre-reremen ncme)? Wha s he desred degree f sldary (nng ha pensn prvsn s necessarly redsrbuve a greaer r lesser exen) n fnancng he ncmes f rered persns; shuld ndvduals save fr hemselves, shuld he yunger generan(s) suppr he elderly as a maer f prncple; r shuld suppr be resrced a mnmal level fr hse unable save enugh fr her wn needs? Evdenly hese quesns, parcularly he las, reflec he brad ssue as he balance f respnsbles beween an ndvdual and he scey whch she r he belngs. he exen ha answers can be crysallsed, hey are lkely dffer sgnfcanly n he cnex f dfferen scees, a dfferen mes, and n dfferng ecnmc cndns. he dvergen answers generae a range f nsunal and fnancng sluns; dfferen cunres can and d esablsh pensn sysems wh, fr example, efre hs recen reremen, Krzyszf Hagemejer held he ps f Chef f Plcy, Gvernance and Sandards ranch n he Scal Precn Deparmen f he ILO n Geneva. Jhn Wdall has als rered frm he saff f ha Deparmen.

25 HOW SHOULD HE DEQUCY OF PENSION COVEGE E LNCED GINS FINNCIL SUSINILIY? Fgure : Prjeced changes n pensn expendure fr EU cunres, 6 (change n percenage f GDP) Surce: EU geng repr dfferen shares f mandary and vlunary prvsns, dfferen cmbnans f defned-benef and defnedcnrbun elemens, and dfferen degrees f prefundng; and, n f he leas sgnfcance, dfferen shares f respnsbly allcaed he publc and prvae secrs. In any cunry, he resulng scal cnrac wll be subjec frm me me revsn as demgraphc, ecnmc and scal crcumsances, n menn publc percepns and audes, change. Durng her mre han -year lng hsry, scal secury pensn sysems have evlved wh such changng crcumsances and audes. I can be seen, hwever, ha ne cnsan feaure f successful refrms s he need fr a wde degree f publc accepance fr revsn f he prevalng (explc r mplc) sceal agreemen. efrms ha fal recgnse he prevalng percepns f wha s far and adequae usually fal. Frm me me he scpe f such scal cnracs may crss brders and resul n nernanal scal agreemens. hese may ake he shape f nernanal sandards, such as he Cnvenns and ecmmendans f he Inernanal Labur Organzan, he Eurpean Cde f Scal Secury (rgnally prmulgaed by he Cuncl f Eurpe n 964), r agreemens f mre specfc scpe, such as hse develped whn he Eurpean Unn. 3 HE DYNMICS OF CHNGE Demgraphc develpmens have, f curse, sgnfcan mpacs n scal secury sysems n general and pensn sysems n parcular. Fgure presens resuls f he prjecns f pensn expendure unl 6 fr all EU member cunres. Fgure s derved frm he calculans made fr (and be fund n) he EU geng epr, and shwng prjeced changes n expendure (measured as a percenage f each cunry s GDP) beween and 6. he changes are decmpsed n dfferen facrs, purely demgraphc r f her ypes, drvng he level f pensn expendure. Sme facrs, nably ncreases n demgraphc dependency ras, serve Wh respec pensns n parcular, he ms mpran f hese nsrumens f he ILO are Cnvenn N. f 95, cncernng mnmum sandards n scal secury, and n cmbnan Cnvenn N. 8 and ecmmendan N. 3 f 967, cncernng Invaldy, Old-ge and Survvrs enefs.

26 4 USLIN JOUNL OF CUIL PCICE 4 VOLUME drve up expendure, whle hers, such as reducns n benef levels r ncreases n acual reremen ages (manly plcy-deermned), ac reduce css. he lengh f he bar he rgh f he rgn fr each cunry represened n he graph shws he expeced ncrease n pensn expendure (n GDP percenage pns) n he absence f refrms r her plcy changes. I hus shws he penal mpac que dramac f demgraphc change. he elemen f each bar clured blue shws he exen whch he penal ncrease s reduced by planned reducns n benef genersy hus he mpac f he exen whch he ncrease n benef amuns ver he prjecn perd falls behnd prjeced ncreases n prducvy. In a few cases, he al magnude f he plcy-relaed changes s mre han suffcen ffse he expeced n-change cs ncreases, s ha he ps-refrm ne ncrease s negave, and n hese cases he blue elemen f he bar s parally hdden by he black elemen. he elemens f he bars clured green shw he reducn f penal expendure ncreases arsng frm her changes n he pensn sysem desgn, n parcular ncreases n reremen ages, and expeced changes n he labur markes, nably ncreased labur frce parcpan a all ages. he ne balance, afer allwng fr hese facrs, s shwn by he sze f he black par f each bar n Fgure, represenng he ne prjeced ncrease n pensn expendure. hese ncreases, hanks he refrms underaken, are smaller n all, and much smaller n ms, f he EU cunres han hse ha wuld resul frm demgraphc changes f n cunerbalanced by varus plcy respnses. Inspecn f hese resuls ceranly des n suppr he nn ha he ageng f ppulans n Eurpean Unn member cunres s leadng any unavdable pensn crss. On he cnrary, ms f hese cunres have adped refrms whch, a leas a large exen, cunerbalance he cs effecs f expeced demgraphc change. hs has been acheved mre fully n sme cunres han hers; n sme cunres here are bvusly sll hngs be dne and furher refrms pendng. I shuld be ned, als, ha he analyss predaes sme furher develpmens ha have aken place n ceran cunres n whch he fnancal crss has had he larges mpac, such as Greece and Cyprus. On he her hand, and as ned abve, Fgure shws ha here s a grup f cunres n whch he cmbned effec f he refrms pensn accrual ( blue elemens) and her facrs ( green elemens) exceeds he base case expeced ncrease, resulng n ras f pensn expendure GDP whch may n fac reduce ver he perd 6, as shwn by negave resdual values ( black elemens f he bars). In hs sense may be suggesed ha, f he sensble bjecve f refrms s address he resuls f demgraphc change, s lkely n sme cases ha hse whch are underaken may n fac versh her arges. 4 IMPLICIONS EGDING OD DEQUCY I s a vald quesn as wheher he resuls suggesed by hese prjecns wll acually maeralse. Sme f he prjeced resuls are hghly sensve assumpns f ncreased labur frce parcpan and laer reremen, and may n fully maeralse f changes n labur marke and her cndns dverge frm hse expeced. In he case f refrms ha rely msly n reduced fuure benef levels, here may be fuure plcal bsacles: when peple realse ha he pensn sysems are falng delver levels f precn whch hey perceve as adequae and far, reversal f a leas sme f he refrms shuld be expeced. On he ne hand, s evden, as seen abve, ha refrms can acually acheve susanably, n he sense ha ncreasng expendure n pensns can be cnrlled, despe demgraphc changes. On he her hand, s als evden ha he refrm agenda may resul n a hgh level f dwnward pressure n fuure benef levels, and he quesn arses wha exen hese benef levels, much lwer han day, wll be acceped n he fuure by acual r prspecve pensners as adequae. dequacy and susanably mus be seen as w sdes f he same cn. Fgure presens a vsualsan f he prjeced changes n fuure replacemen raes f he publc pensn schemes n he Eurpean Unn ver he perd frm 6. he cunres ha are lcaed n he graph belw he 45 degrees lne are hse where he expeced replacemen raes are decreasng, and he dsance f he pn represenng each cunry belw ha lne prvdes an ndcan f he severy f he mpac n replacemen raes f he refrm prcess. gan we shuld ne ha he ms recen refrms n ceran cunres badly h by he fnancal crss are n refleced, r a leas n fully s, n he analyss. In sme cunres he expeced decrease n replacemen raes seems que sgnfcan. eplacemen rae arges have lng been a key feaure f pensn scheme desgn, and wuld be desrable quanfy he adequacy f prvsn agans ne r mre benchmarks expressed n such erms. ccrdngly, bh he scal secury Cnvenns f he Inernanal Labur Organzan and he Eurpean Cde f Scal Secury demand ha nanal pensn sysems (pssbly cmprsng several schemes) shuld delver replacemen raes f a leas 4% f pre-reremen earnngs when an ndvdual

27 HOW SHOULD HE DEQUCY OF PENSION COVEGE E LNCED GINS FINNCIL SUSINILIY? 5 eplacemen rae a reremen n 6 mana Czech epublc Fgure : verage replacemen raes a reremen n publc pensn schemes n and prjeced fr 6 (seleced Eurpean cunres) Surce: EU geng epr has pad cnrbuns fr 3 years (equvalen an annual accrual rae f.33 per cen): 3 sysems shuld be desgned n such a way ha, even f benefs are capped fr hse wh relavely hgh earnngs, hs sandard shuld be me fr all hse wh have earnngs lwer han he prevalng average. Frm Fgure we can see ha publc pensn sysems n sme cunres are already nadequae prvde such replacemen raes a presen, and n a number f hers are lkely fall behnd ha arge by 6, even fr hse cnrbung fr lnger han 3 years. Wheher r n he arge replacemen rae f 4 per cen represens an apprprae benchmark n relave erms, s mpran als cnsder hw effecve pensn benefs a hs level can be n bvang pvery n ld age. I s n easy make such an assessmen n a glbal bass, wng, amng her hngs, he wde range f nanal pvery lnes. he recen resuls, fr reference year, frm he Srucure f earnngs survey cnduced furyearly by he Sascs Offce f he EU, EUOS, 4 revealed ha n 7% f emplyees n he Eurpean cunres (mre han % per cen f wmen and ver 3% f men) had earnngs belw a lw-earnngs hreshld, defned fr hs purpse as w-hrds f medan earnngs. he hghes prprns f lw-wage earners were n Lava (7.8%), Lhuana (7.%), mana (5.6%), Pland (4.%) and Esna (3.8%), whle he lwes were n Sweden (.5%), Fnland (5.9%), France (6.%), elgum (6.4%) and Denmark (7.7%). he EUOS daa allw us esmae he prprn beween a hyphecal scal benef 3 he Inernanal Labur Organzan s Cnvenn N., he Scal Secury (Mnmum sandards) Cnvenn f 95, ses hs mnmum, and cunres ha have rafed he Cnvenn mus underake, n prncple, a bndng cmmmen ensure ha he requred mnmum level s enshrned n nanal law. s a md-4, 5 cunres have rafed he Cnvenn. Cnvenn N. 8, he Invaldy, Old ge and Survvrs enefs Cnvenn f 967 (albe rafed dae by nly 6 cunres) ses a smewha hgher sandard, requrng ha an ndvdual wh cnrbues fr 3 years shuld receve a pensn f a leas 45 per cen f pre-reremen earnngs, ha s, an annual accrual rae f.5 per cen. Cunres whch have n rafed hese cnvenns are n legally bund n he same way, bu he fac ha he Cnvenns have been adped n plenary sng by he ILO s 8-plus member cunres means ha hey can be cnsdered represen a srng glbal cnsensus n bes pracce. 4 descrpn f he scpe f hs survey and arrangemens fr access can be fund a: hp://epp.eursa.ec.eurpa.eu/pral/page/pral/mcrdaa/ses

28 6 USLIN JOUNL OF CUIL PCICE 4 VOLUME Fgure 3: Prprn f arge mnmum pensn (4% replacemen rae) realsed fr rerees a lwer and upper hreshlds fr lw earnngs Surce: uhrs calculans based n EU geng epr ulgara Iceland Luxemburg Cyprus Prugal usra Czech epublc Slvena Slvaka France Lava Greece Swzerland Lhuana Sweden Esna Mala Fnland Span Ialy Uned Kngdm Nrway elgum Hungary Neherlands Germany Pland Ireland Denmark Craa mana prvdng a 4% replacemen rae calculaed n he bass f earnngs a he level f he lw-earnngs hreshld and dfferen relave rsk-f-pvery hreshlds fr sngle persns as used n he EU: a lwer hreshld f 4% f medan ncme and an upper hreshld f 6% f medan ncme. Fgure 3 shws he resul. I s clear ha a 4% replacemen rae (he C benchmark) s nsuffcen preven pvery a he upper pvery hreshld n any f he EU cunres, n nly amng hse wh large numbers f lwearners. Mrever, he same s rue fr he majry f cunres n relan he lwer pvery hreshld. In nly cunres d hse a (bu n much belw) he lw-earnngs hreshld have he prspec f avdng pvery as s defned a he lwer relave level. I s llumnang ask, als, a reverse quesn: wha wuld be he mnmum replacemen rae whch wuld guaranee ha hse wh specfc earnngs levels receve benef ncme abve he pvery lne? s Fgure 4 shws, hse wh spend ms f her careers wh earnngs a he level f he lw earnngs hreshld wuld need, dependng n he cunry, replacemen raes beween 5 and 9 per cen (whle hse wh earnngs even lwer wuld, f curse, need even hgher replacemen raes). he exsng nernanal sandards n scal ulgara Iceland Luxemburg Cyprus Prugal usra Czech epublc Slvena France Lava Greece Swzerland Lhuana Sweden Esna Mala Fnland secury (bh Inernanal Labur Organzan Cnvenns and Eurpean Cde f Scal Secury) are cnsruced n such a way as ensure as far as pssble ha hse wh lwer earnngs and shrer careers are n dsadvanaged (relavely) by he desgn f pensn schemes (Hagemejer 9). In he ld-fashned defned-benef scal secury pensn schemes, redsrbuve benef frmulas (usually cmbned wh fla rae cmpnens r her equvalen) guaraneed such hgher replacemen raes fr lw wage earners. day, many cunres have remved hse redsrbuve frmulae, nrducng nsead eher defned-cnrbun (DC) r nnal (fr sme cmmenars nnfnancal ) defned-cnrbun (NDC) cmpnens, r cnverng defned-benef (D) schemes a purely earnngs-relaed srucure. In hs suan, he securng lw-wage earners f benefs ha wuld keep hem u f pvery can be acheved nly by srenghenng mnmum benef prvsns (a maer n whch ms cunres have dae fallen shr), n general hrugh sme frm f nn-cnrbury mnmum ncme guaranee. In summary, s clear ha an early ucme f recen refrms f cnrbury pensn schemes has been he reducn f replacemen raes, nably fr Span Ialy Uned Kngdm Nrway elgum Hungary Neherlands Germany Pland Ireland Denmark Craa mana ulgara Iceland Luxemburg Cyprus Prugal usra Czech epublc Slvena France Lava Greece Swzerland Lhuana Sweden Esna Mala Fnland Span Ialy Uned Kngdm Nrway elgum Hungary Neherlands Germany Pland Ireland Denmark Craa mana

29 HOW SHOULD HE DEQUCY OF PENSION COVEGE E LNCED GINS FINNCIL SUSINILIY? mana Craa Denmark Ireland Pland Germany Neherlands Hungary elgum Nrway Uned Kngdm Ialy Span Mala Fnland Esna Sweden Lhuana Swzerland Greece Lava France Slvaka Slvena Czech epublc usra Prugal Cyprus Luxemburg Iceland ulgara Fgure 4: Mnmum replacemen rae needed by hse a he lw earnngs hreshld guaranee reremen benef a he level f he (upper) pvery lne. Surce: uhrs calculans based n EU geng epr hse wh lwer earnngs and wh shrer, brken careers. he exen whch he cnrbury elemens f nanal pensn sysems adequaely mee he needs f hs relavely vulnerable grup f peple (n whch, prprnaely, wmen are markedly verrepresened) s deerrang. In a number f cunres, pensn refrms have ncluded he nrducn f varus aumac r semaumac mechansms nended reac changng demgraphc, ecnmc and labur marke cndns, and mdfy ceran scheme parameers (nably hse defnng drecly r ndrecly he raes f pensn accrual) brng expendure n clser balance wh revenue. nalyss shws hs be rue bh f he refrms n cunres ha have nrduced s-called nnal defned cnrbun (NDC) schemes (Lava, Ialy, Sweden and Pland) and als sme her refrms mplemened n many OECD cunres (see Hagemejer ). hus we see, a he cre f he publc ers f he pensn sysems, schemes ha are (as prevusly) fnanced n a pay-as-yu-g (PYG) bass, bu nw purely earnngs relaed, n whch pensn amuns are calculaed n he bass f (adjused) earnngs frm he whle f an ndvdual s career cnrbun recrd. 5 IMPLICIONS EGDING DEQUCY FO INDIVIDULS Fr an ndvdual, he ucme f parcpan n a pensn scheme s measured n erms f he benef amun and he degree whch ncme frm wrk befre reremen s replaced by a pensn a reremen (he replacemen rae). Frm hs perspecve, dfferen refrm appraches may have equvalen ucmes, wheher he mechansm f calculan s ha f DC, NDC, D, r based n a pn sysem. he use f adjused lfeme earnngs r cnrbuns as a bass fr calculang pensns (specfcally he career average apprach pensnable earnngs) generally reduces he resulng pensn levels and replacemen raes n cmparsn wh hse defned-benef schemes (f he fnal average earnngs ype), whch exclude frm pensn calculans earnngs frm he early, lw-earnng sages f wrk careers, r earnngs frm her lw-ncme perds n ndvdual careers. Such reducn f pensns s n unfrm and has subsanal redsrbuve effecs. he lsers are, f curse, all hse wh, n parcular a he early sages f her careers, have lw earnngs and, perhaps, haphazard earnngs paerns. I s easy shw ha pensn ucmes depend n nly n he al amun f earnngs, and hus cnrbuns pad durng he

30 8 USLIN JOUNL OF CUIL PCICE 4 VOLUME whle wrk career, bu als n he mng ver he career curse f he recep and paymen f hse earnngs and cnrbuns respecvely. persn havng a cnsan sream f earnngs ver he curse f her r hs whle career wll receve a hgher pensn and hgher replacemen rae han anher havng he same (unadjused) sum f lfeme earnngs and al verall cnrbuns n he scheme bu wh sared earnng (by cmparsn wh he frs persn) and payng cnrbuns afer a delay f several years. Frm an acuaral perspecve, f curse, hs s an bvus cnsequence f he dfferng me-values f cnrbuns, bu he relevan magnude f he effec may be much less evden plcy-makers and her sakehlders lackng ha perspecve. Such dfferenal ucmes can have mpran mplcans, perhaps ncreasngly s, n relan yung peple enerng he labur frce. hse wh delay he sar f wrk and her cnrbun career n rder acheve hgher educan levels may have he resulng lss n fuure pensn cmpensaed by hgher earnngs a a laer sage f her careers, bu nly f he reurns frm hs nvesmen n human capal are hgh enugh. On he her hand, s ncreasngly he case ha fr hse wh a yung ages sruggle fnd frmal emplymen and fr whm f hey have emplymen a all s usually f a precarus characer, s ndeed unlkely ha such cmpensan frm hgher earnngs a laer sages f her careers wll be suffcen repar her pensn expecans. Smlarly, he labur marke wll n (n general) cmpensae he ls earnngs f hse (msly wmen) wh, havng care fr chldren (r her famly members), spend sgnfcan perds u f wrk, r n parenal leave, r wrkng par me. a scheme level, s pssble cmpensae fr he pensn defcs f hese knds, hrugh apprprae measures n he scheme desgn allw creds fr cnrbuns mssed n defned crcumsances. Such a desgn feaure shuld be parcularly easy mplemen n he seng f an NDC scheme, and ndeed sme such allwance s made n each f he fur EU cunres ha have schemes f hs ype ncluded n he abve assessmens. I mus be sad, hwever, ha hese schemes wh sme exen he excepn f Sweden effecvely cmpensae nly a small par f he lss n fuure pensn enlemens fr ms ndvduals. I s well undersd ha NDC pensn schemes, n a smlar way n nly funded DC bu als any D earnngs-relaed scheme where pensn calculan s based n adjused whle-career earnngs, ranslae dfferences n earnngs n he labur marke n dfferences n pensns. I s less well undersd ha hese dfferences may acually be amplfed, wh he resul ha relave dfferences n pensn levels as beween ndvduals (nably, bu by n means nly, beween men and wmen) may be greaer han he relave dfferenals n pre-reremen earnngs. Dscussn f he redsrbuve aspec f pensn sysems leads naurally he cnsderan f relave equy. In he versn f hs arcle presened a he Lyn Cllquum n 3, reference was made he need fr he nvesgan f he redsrbuve feaures f [hese] allegedly acuarally far schemes mre clsely (whaever he nn f acuaral farness may acually mean). hs was n nended as an algeher hrwaway remark, bu s clear, parcularly n he lgh f he cnex and scpe f her papers presened a he Cllquum, ha hs aspec f pensn prvsn deserves much clser aenn, and he ppruny s aken add hs arcle an addnal secn whch may ffer sme pners as he pssble drecn f such a dscussn. here s f curse n cnrversy n he bservan ha reurns n ndvdual cnrbuns pad ver he cnrbun career wll dffer dependng n he me dsrbun f he amuns pad n. he same me, parcularly n he case f schemes peraed hrugh pay-as-yu-g fnancng, acual cnrbuns are pad a cmmn p and hus may happen (r be perceved) as he end resul ha members wh relavely lw earnngs are effecvely subsdsng he pensn benefs f hse wh hgher earnngs. Mre research s needed n hw dfferen dsrbuns f earnngs ver wrkng careers relae fnal pensn amuns befre clams can be subsanaed ha hrznal equy, farness and ransparency are, r are n, served hrugh redsrbun, parcularly n NDC and smlar PYG schemes. One way n whch plcy-makers have sugh secure he fnancal susanably f refrmed pensn schemes has been buld n he desgn f hese schemes srng ecnmc ncenves fr members cnrbue mre fr lnger and delay reremen. Scheme desgners have sugh prvde such ncenves hrugh suffcenly psve lnks beween he duran and amuns f cnrbuns be pad and nng ha he age f reremen s beng ncreased n many cunres he resulng pensn levels. Unfrunaely, ncenves wrk lnger may be undermned n realy by a range f nn pensn relaed facrs deermnng wheher and hw lng ndvduals can r d say n emplymen. hese facrs nclude, amng hers, verall labur marke demand and prevalng unemplymen raes; he sae f healh f lder wrkers (deermned a large exen by wrkng cndns durng her wrkng lfemes); ndvduals famly suans (n leas he need care fr sck famly members); wrkers prducvy (reflecng perhaps he exen whch hey enjy pprunes parcpae n he knd f lfe-lng learnng needed keep up wh

31 HOW SHOULD HE DEQUCY OF PENSION COVEGE E LNCED GINS FINNCIL SUSINILIY? 9 changng echnlges); and he audes and chces f emplyers (see ILO 3). Despe he prvsn f wha may be nended as srng ncenves, lder wrkers may n fac be frced u f he labur marke and lef n pvery wh nsuffcen pensns. I s als becmng ncreasngly bvus ha, even n an NDC scheme, here s a need adjus pensn ages upwards, and hs may necessae he adjusmen f mnmum legal reremen ages, f emplyers prve relucan keep lder wrkers n emplymen (r nves n her ranng), knwng ha a any mmen hey can ake he decsn rere. Sme argue ha he adequacy f benef levels shuld be a maer f persnal chce, wh ndvduals chsng fr hemselves he age f reremen (beynd a publcly fxed mnmum age), r shuld even be allwed rere whenever hey may ndvdually decde ha her pensn balances are adequae. In he framewrk f PYG-fnanced schemes (and perhaps beynd), hs may lead negave selecn. he resul may, mrever, be a suan when nly he well-ff have a realsc pn rere, whle he less well-ff may be cmpelled, n effec, wrk unl hey de. 6 EDISIUIVE SPECS OF PENSION EFOM I seems ha refrms n a range f cunres n recen years have, as ned abve, remved frm benef frmulae he redsrbuve cmpnens, he am f whch was prvde a leas sme precn agans pvery fr hse wh lwer earnngs and shrer careers. I s bvus ha n DC (r smlar) pensn scheme lackng addnal bul-n guaranees can ensure ha benefs wll reach a level f adequacy fr all, whaever arges (fr pvery allevan r herwse) may be se whn nanal plcy framewrks. On he cnrary, fr a gven cnrbun rae and gven rae f reurn, unless scheme members wrk lng enugh mach ncreasng lfe expecancy, ha facr alne wll resul n fallng replacemen raes. Whle such a mechansm f adjusmens n benefs can wrk as an aumac fnancal sablser, hs may resul n a susanably rap n he lnger erm; when prmsed benefs sar be seen as nadequae, he wllngness f members f he schemes cnrbue may reduce crrespndngly. he mechansms nw exsng guaranee ncme secury n ld age n hse cunres ha have embarked n NDC r smlar refrms seem n he whle be nadequae, and here mus be a rsk, even n he develped-ecnmy cunres, f a resurgence f ld-age pvery. fen, NDC and smlar schemes have been cnceved as a means reduce pensns and encurage members rere laer, n a bass ha s aumac, even f n very ransparen. I was expeced ha he nrducn f aumac adjusmen mechansms, whn NDC schemes r herwse, wuld reduce he need fr plcal nervenn, alng wh ha fr any asscaed prcess f scal dalgue, whch has, agan fen, been seen as a facr delayng necessary decsns. he recen fnancal and ecnmc crss has shwn very clearly he lmans as he exen whch relance can be placed n such aumac adjusmen mechansms n he shr erm. here s, and here always wll be, a ensn beween lng-erm cncerns and shrer-erm needs, and here mus be a cmprmse beween he w. he same lman f he scpe f aumac balancng, hwever, apples lng-erm cncerns abu benef adequacy unless we are able buld mechansms n he sysem securng n nly fnancal sably bu als benef adequacy, here wll be a permanen need fr dscrenary nervenns n he sysem. he nn ha pensn sysems can be shelded frm plcal nfluences s n nly unrealsc bu als undesrable: pensn plcy mus frm a par f any cunry s verall scal plcy. Wha s needed s ensure ha when decsns are aken n a plcal bass, hey are he rgh nes, balancng shrer and lnger erm needs as well as balancng benef adequacy wh fnancal susanably. key prerequse mus be ensure hrugh demcrac mechansms he full parcpan f each grup f sakehlders wrkers, emplyers and gvernmen n esablshng he relevan sandards and n creang and mananng he permanen srucures hrugh whch pensn sysems may be mnred, verfed and adjused n a respnsble way (see Wdall & Hagemejer 9). In hs lgh, s suggesed ha a number f recen refrms shuld be revsed see wha exen hey have gne far n sme cases cmpleely remvng he redsrbuve cmpnens, and hus precn f weaker members, frm he cnrbury pars f publc pensn sysems. I s necessary als cnsder hw srenghen nn-cnrbury guaranees, whch may ake a varey f dfferen frms, ncludng he esablshmen f a basc sae pensn ha may be unversal r means-esed, and dfferen frms f cnrbun subsdes cmpensang a leas parally fr careers ha are shr r brken, due exended perds f chld care, care prvded sck r ld members f he famly, r due exended spells f unemplymen. Such revews shuld be underaken as a fllw-up he new nernanal labur sandard n scal secury, ILO ecmmendan N., cncernng nanal flrs f scal precn, adped n, whch cmplemens Cnvenn N.. he adpn f hs ecmmendan, vrually unanmusly, by all f he member cunres f he ILO

32 3 USLIN JOUNL OF CUIL PCICE 4 VOLUME mples a srng mral cmmmen by cunres guaranee, all resden lder persns, basc ncme secury a a level allwng lfe wh dgny. he fcus f he dscussn here has been prblems n he pensn sysems f Eurpean and her develped cunres, nwhsandng ha he arcle has uched n a range f ssues f cncern all, glbally. I s mpran re-emphasse he fac ha he glbal majry f he elderly lve usde Eurpe n develpng cunres, and ha glbally he larges and ms basc challenge s ha he majry f her ppulans enrely lack cverage. he number f hse arund he wrld cnrbung any pensn scheme a all represens a relavely small percenage, and, amng hse wh are already elderly, nly a small mnry receves any ype f pensn (see Inernanal Labur Offce, 3). Fr he majry f he wrld ppulan, hese ssues have ye be adequaely addressed, bu hese cunres wll n escape he mpac f ageng ppulans, and s a crcal quesn as hw develp pensn sysems ha wll be bh susanable n he lng run and prvde cverage fr he nw uncvered majry. 7 HE OLE OF CUIES Earler, he arcle uched n he quesn f wheher prvsn f pensns hrugh schemes f dfferng archecures and wh dfferen balances f cnrbuns and benefs, can be cnsdered be acuarally far. hs expressn seems presenly be n vgue, and ndeed was ncluded n he ls f pcs fr cnsderan by he dequacy ask Frce f he E. I may be suggesed, hwever, ha cnsderable care s needed n s use. In parcular, hs s a phrase f he knd ha ends be used wh an ncreasngly wde varey f meanngs, a he chce f dfferen wrers usually nn-acuares. I wuld ceranly be very agreeable acuares be able presen he resuls f her calculans, r a leas a subse heref, as havng he unversally auhrave characer suggesed by he erm acuarally far. Hwever, n he frs place n he vew f he wrers a leas shuld be undersd ha here s lle r n scpe fr presenng resuls n a way cmparable he accunng cncep f far value, defned n Inernanal Fnancal eprng Sandard (IFS) N. 3 as he prce ha wuld be receved sell an asse r pad ransfer a lably n an rderly ransacn beween marke parcpans a he measuremen dae (IFS Fundan ). wha exen, realscally, can, say, a pensn scheme member cmmssn (n an ndvdual bass) an acuaral assessmen f a ransfer value r annusan prpsal n rder ener an nfrmed dscussn f such values as calculaed by an acuary wh may n be seen by ha ndvdual as represenng her wn neress? Of curse, scheme members wuld n general rely n he assessmens and advce prvded fr r hrugh he bard f drecrs r rusees f a scheme, bu hwever well an acuary advsng such a bard fulfls her r hs ask and adheres her r hs prfessnal duy f care, s always lkely ha he capacy fr undersandng he resuls wll be unbalanced. Indeed, f, as s n unlkely, he acuary s fees are pad drecly r ndrecly by he scheme spnsrs (gvernmen r emplyers), may be dffcul, hwever bjecvely he acuary appraches he wrk, fr hs be seen by a member r members as beng s. Secndly, may be suggesed ha deeper cnsderan be gven wha even acuares wuld mean by acuaral farness. Ceranly, an acuary s n a psn assess acuaral equy, n quanave erms and n relan a defne bass f demgraphc and fnancal facrs. he dea f farness, hwever, wuld n lay erms generally have wder cnnans, n necessarly algeher quanave n naure. sgnfcan danger seems le n he lkelhd ha acrs n he relevan fnancal space may, by usng he expressn f acuaral farness, effecvely c-p he auhry f he acuary asser a degree f bjecvy ha may well be clured by nn-acuaral cnsderans, and ndeed may n be warraned a all. In he presenan and dscussn a he Lyn Cllquum n 3, was suggesed ha he rgh framewrk n whch pensn scheme members shuld be brugh n he fnancal dscussns arund her scheme(s), n an nfrmed bass, shuld make reference n parcular he prncples f demcracy, and f rpare 5 scal dalgue, nng ha a leas sme f he dfferen neress arund he able may well be nn-ransparen. In hese crcumsances, an acuary has rles play well beynd ha f a fnancal echncan, ncludng hse f an nerpreer f he fnancal resuls, and n sme cases as an advser r cunsellr. he scpe whn whch farness s sugh, ceranly n he case f nanal, publc pensn schemes, s deermned n nly by cnsderans f acuaral equy, bu als, s suggesed, f scal jusce. Whle hese ssues d n change he echncal 5 In he cnex f all f he acves, ncludng echncal and advsry wrk, underaken by he ILO, rpare means ha he respecve neress f gvernmens, emplyers and wrkers (he las w grups hrugh nanally represenave rganzans, whch n he case f wrkers wuld usually be accreded rade unns r federans) shuld be recgnzed jnly. In he case f acves n he feld f pensns specfcally and scal secury generally, s arguable ha he relevan scal secury schemes/admnsrans frm a furh grup.

33 HOW SHOULD HE DEQUCY OF PENSION COVEGE E LNCED GINS FINNCIL SUSINILIY? 3 naure f he wrk he acuary s requred underake, he envrnmen n parcular ha f rpare scal dalgue and he wder rle f an acuary n hs envrnmen may be unfamlar many. In hs lgh may well be cnsdered a maer f sme urgency ha acuares advsng pensn schemes, parcularly n he publc sphere, shuld revew he way n whch hey ake nsrucns frm her prncpals and recgnse a ceran se f respnsbles n relan he whle se f pensn scheme sakehlders. blgraphy Cuncl f Eurpe. (964). Eurpean Cde f Scal Secury; hp://cnvenns.ce.n/reay/en/reaes/hml/48. hm (accessed n 8/7//4). Eurpean Cmmssn. (). he ageng repr: ecnmc and budgeary prjecns fr he 7 EU member saes ( 6). Eurpean Ecnmy /. Hagemejer, K. (9). ghs based apprach scal secury cverage expansn. In ber. Hlzmann, Davd.. baln & Nryuk. akayama (eds). Clsng he cverage gap. Wrld ank, Washngn, DC, Hagemejer, K. (). Lessns frm pensn refrms. In ber. Hlzmann, Edward. Palmer & Davd. baln (eds), Nn-fnancal defned cnrbun pensn schemes n a changng pensn wrld, vl I. Wrld ank, Washngn, DC, -4. Hagemejer, K. (3). Hw balance adequacy f cverage wh fnancal susanably. Paper presened Cllquum f he Inernanal cuaral sscan, Lyn, France, 3. IFS Fundan. (). IFS (Inernanal Fnancal eprng Sandard) N. 3 Far Value Measuremen. Inernanal Labur Organzan. (95). Scal Secury (Mnmum Sandards) Cnvenn (N.). hp://www. l.rg/dyn/nrmlex/en/f?pnomlu:: ::NO::P_INSUMEN_ID:347:NO (accessed n 8/7/4). Inernanal Labur Organzan. (967). Invaldy, Old-ge and Survvrs enefs Cnvenn, (N. 8). hp:// :::NO::P_INSUMEN_ID:373:NO (accessed n 8/7/4). Inernanal Labur Organzan. (). Scal Precn Flrs ecmmendan (N. ). hp:// dyn/nrmlex/en/f?pnomlu::::no: :P_INSUMEN_ID:36554:NO (accessed n 8/7/4). Inernanal Labur Offce. (). Wrld scal secury repr. Geneva. Inernanal Labur Offce. (3). Emplymen and scal precn n he new demgraphc cnex, epr he nd Sessn f he Inernanal Labur Cnference, Geneva. Wdall, J., & Hagemejer, K. (9). Mananng pensn levels n PYG schemes n ageng scees: rules versus dscren. Paper presened a ISS echncal Semnar n pensns, Pars. Dr Krzyszf Hagemejer PhD [email protected] Dr Krzyszf wrks a Offce f he Presden f Pland. Frm he wrked a ILO, recenly as Chef f Scal Plcy, Gvernance and Sandards ranch. He als eaches a Warsaw and Maasrch Unverses. Jhn Wdall M FI [email protected] Jhn s a Fellw f he UK Insue and Faculy f cuares. He wrked fr a number f years as a Scal Secury Specals wh he Inernanal Labur Organzan (ILO), frs based n New Delh and laerly, unl hs reremen n 3, a he Organzans headquarers n Geneva.

34 3 USLIN JOUNL OF CUIL PCICE 4 VOLUME

35 33 Susanably f he French frs pllar pensn scheme (CNV): assessng aumac balance mechansms D FEDEIC GNNON, D SEPHNE HMYON, ECO FLOENCE LEGOS ND D VINCEN OUZÉ SC Dr Frédérc Gannn Dr Sephane Hamayn ecr Flrence Legrs In hs paper, we apply w ypes f aumac balance mechansm (M) he French frs pllar pensn sysem fr prvae secr emplyees (CNV). One s based n a ax gap ra (G-M) and he her s he smh M (S-M) develped by Gannn, Legrs and uzé (3). w lng-run frecas scenars ver he perd 4 63 are analysed. he frs s pmsc ( benchmark ) and assumes a 4.5% unemplymen rae and a.5% prducvy grwh rae n he lng run. he secnd s mre pessmsc ( pruden ), wh a 7.5% unemplymen rae and a % prducvy grwh rae n he lng run. Fr he benchmark (respecvely pruden) scenar, a G-M requres, nw and fr he nex 5 years, a.8% (respecvely 6.3%) decrease n pensns and a.9% (respecvely 6.7%) ncrease n he ax rae. n S-M requres, fr he benchmark (respecvely pruden) scenar, an mmedae.5% (respecvely 3.6%) decrease n pensns and a.4% (respecvely 3.5%) ncrease n he ax rae. In he lng run (5 years), an S-M requres a 4.5% (respecvely 9.%) reducn n pensns and a 4.5% (respecvely 9.%) ncrease n he ax rae. Dr Vncen uzé JP 4; : KEYWODS pensn scheme susanably, aumac balance mechansm

36 34 USLIN JOUNL OF CUIL PCICE 4 VOLUME INODUCION he French pensn sysem fr prvae secr emplyees s based n w pllars. he frs pllar s a basc scal secury plan (Casse Nanale d ssurance Vellesse, CNV). I s a pay-as-yu-g (PYGO) scheme ha prvdes pensns n a defned benef rule. he pensn s prprnal he average wage cmpued ver 5 years ( reference wage ), based n wages bunded by a maxmum, called he scal secury celng (see appendx). he secnd pllar ncludes w addnal schemes: CO fr all wrkers and GIC fr execuves. h pay pensns n a defned cnrbun rule and are als pay-as-yu-g pensn schemes. hese w pllars are peraed under dfferen rules. he CNV s managed by he scal secury admnsran, whereas he secnd pllar schemes are managed by scal parners, bu sme parameer changes f he cmplemenary pensn schemes (fr nsance, he pensnable age) are drecly gverned by he scal secury sysem. Sgnfcan defcs n hese plans sem frm he curren ecnmc crss (lwer grwh cmbned wh hgher unemplymen). Hwever, hese defcs arse well befre expeced as a resul f he ageng f ppulan. In France, pensn refrm s subjec a harsh plcal debae (lanche & Legrs ), whch fen leads gvernmens adp refrms nly when hey n lnger have a chce. hese ad hc refrms (urner 9) nduce ncnssency n he chce f pensn fundng. hs blurs he plannng f her fuure by dfferen generans f wrkers because hey d n knw hw her cnrbun raes and pensn amuns wll be changed. ackle hs prblem, aumac adjusmen mechansms (Ms) culd be mplemened, relyng n rules (urner 9) ha defne hw dfferen pensn calculan parameers mus be adaped accrdng changes n bserved varables (fr example, lfe expecancy, cnsumer prce ndex). When hese adjusmens fal ensure fnancal susanably, may be wse fllw cunres such as Sweden (Seergren ; Caprea 6; ndrews 8; Vdal-Mela e al 9; Scherman ; Gannn e al. 3; Sakam 3) and use an aumac balance mechansm (M). hs paper prpses assess hw he use f Ms culd guaranee he slvency f he CNV. Secn ulnes CNV s fnancal frecass up 5 years. w scenars wll be analysed, ne, pmsc; he her mre cnservave ne. hese wll manly be used n rder generae he daa requred fr he secnd par f he paper. Secn 3 s dedcaed he use f Ms. Frs, we presen a way address he ssue f lngerm cred hrugh he cncep f unfunded blgans, such as defned by he US Scal Secury admnsran, and he cncep f ax gap ra. Nex, w ypes f M are used. One s based n a ax gap ra (G-M), he her s an applcan f he smh M (S-M) develped by Gannn e al (3). Cmpared wh usng a ax gap ra, usng an S-M allws fr a gradual adjusmen n he cnrbun raes and he pensn levels. Hwever, he drawback f hs mplemenan s ha dsrs he prncple f generanal equaly. In effec, he S-M reles n a parameer f publc preference fr presen. ha can be vewed as a knd f prcrasnan. WO SCENIOS FO HE FUUE OF HE FIS PILL PENSIONS SCHEME OF PIVE SECO EMPLOYEES (CNV) Srucurally, w man macrecnmc varables have sgnfcan mpac n he slvency f CNV pensn scheme: he unemplymen rae and he GDP grwh rae. We brefly descrbe he mechansms a sake and he frecas bul n w scenars. Unemplymen rae (Fgure a) s usually hugh play a crucal rle n fnancal balancng hrugh he ncrease n cnrbuns. hs s rue n he shr run, because receps ncrease when he unemplymen rae decreases bu, n he lng run, he ne effec may be ambguus. Frs, accrdng he Phllps curve (Phllps 958), whch hsrcally shws an nverse relanshp beween unemplymen and wage ncrease raes, a decrease n he unemplymen rae mples an ncrease n wages. hs, n urn, ncreases he shr-run effec n verall cnrbuns. Secnd, n he lng run, pensn lably depends upn careers and, herefre, lfelng wages. hen, pensn lably ncreases as he unemplymen rae decreases. s far as France s cncerned, he 3 refrm (see appendx fr he deals) pus an end he ndependence f unemplymen nsurance and he pensn sysem by spulang ha he surplus f

37 SUSINILIY OF HE FENCH FIS PILL PENSION SCHEME (CNV) 35 unemplymen nsurance (UI, hereafer) adds he fnancng f he pensn scheme, f requred. hs nrduces a clear and psve relanshp beween he unemplymen rae and he pensn scheme balance. When he unemplymen rae falls belw a 7% hreshld (Hamayn & Legrs 7), he UI generaes a surplus. I fllws ha a wse frecaser shuld be cauus n hs assumpn f lng-run unemplymen rae, avd any veresmae f he pensn scheme resurce resulng frm a pssble UI surplus. he ecnmc grwh rae (Fgure b) s als a crucal varable. In he case f psve ecnmc grwh rae, expendures grw less han receps. hs s due he pensn rules (see appendx): bh he wages used fr he reference wage and pensns are ndexed n nflan and n n he ecnmc grwh rae. hs ndexng rule helps mprve he balance f he pensn scheme as sn as he nmnal ecnmc grwh exceeds he nflan rae. he par played by he prducvy grwh rae (Fgure b) balance he pensn scheme wuld be nperave f he pensns and reference wages were ndexed n he nmnal wages (suppsed be ndexed n he ecnmc grwh rae). Hwever, wh such a rule, rerees purchasng pwer wuld be mananed. In her wrds, when benefs are adjused accrdng changes n he cnsumer prce ndex, rerees pay an mplc ax, hus mprvng he pensn scheme s fnancal balance. hs paper suggess w scenars, smulans f whch are based n a dem-ecnmc mdel wh a dealed descrpn f he French pensn scheme (Hamayn & Legrs ). he frs scenar (he benchmark ) s based upn he duble assumpn f a lw unemplymen rae (4.5% afer 3) and a prducvy rae f.5% (Fgure ). hs scenar s smlar he gvernmen s, whch s wrked u by he Cnsel d renan des reraes (CO, Pensn Orenan Cuncl, whch reprs he Prme Mnser). he secnd scenar ess an alernave and mre cnservave apprach, descrbed hereafer as pruden (Fgure ). I assumes ha he unemplymen rae wll prgressvely reach 7.5% n 3 and ha he prducvy grwh rae wll reman a % (as frecas by rus & Caffe 3). hese dfferen assumpns appear n Fgure shwng ha he pessmsc alernave scenar s drecly deermned by rend bservan. Fgure : w macrecnmc scenars

38 ll USLIN JOUNL OF CUIL PCICE 4 VOLUME Insurance Scheme surplus () Pensn scheme balance () Fgure : CNV: frecas prmary balance Surce: auhrs cmpuans frm he mdel develped by Hamayn & Legrs (). he resuls (Fgure ) are wfld and, f curse, hghly cnrased. Frs, he mpac f he unemplymen rae s cnfrmed. In he benchmark scenar (wh a lw unemplymen rae), he sharp decrease less han 7% n he unemplymen rae afer leads a large ransfer frm he unemplymen nsurance scheme wards he pensns: hs ransfer reaches. pns f UI cnrbun, r 8 blln cnsan eurs ( ). he verall defc f he pensn scheme s nearly nl afer. Secnd, n he case f a lwer ecnmc grwh (and hgher unemplymen rae), he suan s far mre pessmsc. he hgher unemplymen rae prhbs any ransfer frm he UI wards he pensn scheme. he defc f he basc pensn scheme reaches 4.4 n 5. Fgure summarses he resuls. In he benchmark scenar, he decrease n he unemplymen rae allws a sgnfcan ransfer frm he UI wards he pensn scheme (.5 n 3 and 8. n 5), whch pushes up he balance frm he cnnuus bld lne he ded ne. In he pruden scenar, due a hgher unemplymen rae, he ransfers beween he UI scheme wards he frs pllar pensn scheme are nl and he balance remans hghly negave hrughu he cnsdered perd. eadng frm hese frecass, ur smulans prvde bh receps and expendures f he pensn regme, be used n he nex secn. he pensn he sysem: pensn he sysem: unfunded he blgans unfunded blgans and he ax and gap he ra. ax hese gap ra. hese measures are measures hen used are hen buld used w examples buld w f examples Ms. f Ms. 3. Evaluang 3. lng-run Evaluang slvency lng-run slvency 3.. Nans 3.. Nans 3 IMPLEMENING UOMIC LNCE MECHNISMS In hs paper, In fr hs sake paper, We f defne smplcy, fr hereafer sake f we w smplcy, cenral presen cnceps a we nn-schasc presen evaluae a he nn-schasc lng-run apprach nslvency apprach Ms. f he ll pensn ur Ms. sysem: ll he ur unfunded blgans and he ax gap ra. hese measures are hen used buld w examples f Ms. cmpuans cmpuans are based upn are gven based frecas upn gven values frecas f receps values and f expendures. receps and expendures. ha means ha means 3. Evaluang lng-run slvency ha he esmaed ha he adjusmen 3.. esmaed Nans varables adjusmen mus varables be cnsdered mus be as cnsdered frecas values as frecas he values curren fr he curren perd. ha als perd. means ha In hs ha als paper, hese means fr varables sake ha f smplcy, hese wll varables have we presen be wll a revsed nn-schasc have be he revsed apprach frecass he wll Ms. frecass adjus ll ur cmpuans wll adjus are based upn gven frecas values f receps and expendures. ha means ha he esmaed wh me. wh me. adjusmen varables mus be cnsdered as frecas values fr he curren perd. ha als means ha hese varables wll have be revsed as he frecass wll adjus wh me. he curren perd he he curren ( ) perd, frecas ( expendures ) ),, frecas expendures a me a me are a expressed are me are by by expressed wh: by wh: wh: Hereafer, wll dene blln cnsan 3 eurs. E E p j, () p j, () j Ω j Ω

39 perd. wh ha me. ha als ha he means he esmaed esmaed ha hese adjusmen adjusmen varables varables wll varables have mus mus be be revsed be cnsdered cnsdered as he as frecass frecas frecas values wll values adjus fr he curren wh wh me. me. fr he curren wh he perd. me. curren ha perd. als means ha ( als ) ha, frecas means hese ha expendures varables hese wll varables a have me wll be have are revsed expressed be as revsed he by frecass he wll frecass adjus wll adjus perd. he curren ha als means ha hese varables wll have be revsed as he frecass wll adjus wh me. wh me. he he perd curren curren ( perd perd ), frecas ( ( ) ), frecas, expendures frecas expendures expendures a me a a are me me expressed are are expressed expressed by by by wh: he wh curren me. perd ( ), frecas expendures SUSINILIY a me OF are HE expressed FENCH FIS by PILL PENSION SCHEME (CNV) 37 wh: wh: wh: he curren he perd curren ( perd ), frecas ( ), expendures frecas expendures a me a are me expressed are expressed by wh: by he curren perd ( ), frecas expendures a me are expressed by E wh: wh: p j, () wh: E E j Ω E p j, p p () j, j, () () E p j, j Ω Ω j Ω j () wh Ω E Ω a se f rerees a perd and p j, he pensn j pad p each ndvdual j. j, E E p () p () j, () Ω j, () wh Ω j j Ω wh wh a se Ω Ω f rerees a se a se f f a rerees rerees perd a a perd perd and p j and, and he pensn p p j j,, he he pad pensn pensn each j Ω pad pad ndvdual each each ndvdual ndvdual j. j. j. wh Frecas Ω receps a se f rerees a me a perd are expressed and by p j, EC he pensn wh: pad each ndvdual j. wh Ω Frecas wh a se Ω f receps Frecas Frecas rerees a a se se f rerees f a receps receps rerees me perd a a perd a a are me me perd and expressed and are p are j, he expressed and he expressed by pensn pensn p EC wh Ω a se f rerees a perd and p j j, he, pad by he by pad wh: EC pensn each EC ndvdual each pad ndvdual j. each ndvdual j. wh: wh: j. Frecas receps Frecas a receps me a me are by pensn pad each ndvdual j. are expressed by EC wh: Frecas receps Frecas a receps me a are me expressed are expressed by EC by wh: EC wh: Frecas receps a me are expressed by EC wh: EC Eτ w, () EC Ω E E EC EC τ E E w τ, τ w w, () EC Eτ w,, () () () Ω E Ω E Ω E () EC E Ω E EC τ E wh Ω a se f emplyees a perd, w E w EC Eτ, τ w w (), he annual sum f mnhly wages belw he,, () E E Ω E wh Ω () E Ω E wh wh a se Ω Ω f emplyees a a se a se se f emplyees f f emplyees a perd a perd a a, perd perd, w,, w w Ω E E,, he he annual annual sum sum f f mnhly mnhly wages wages belw belw he he, he annual sum sum f mnhly f mnhly wages wages belw he belw Scal he Secury Scal Secury wh Ω celng a se celng f pad emplyees pad each ndvdual each a perd ndvdual, and w τ, he he annual payrll ax sum ax rae. f rae. mnhly wages belw he excess f he presen value f Scal Secury E wh Ω Scal Scal celng E wh a se Secury Secury pad EΩ f emplyees a se celng celng each f emplyees a pad pad ndvdual perd each each a, perd ndvdual ndvdual and τ w, w wh Ω a se f emplyees a perd, w, he, he annual sum f mnhly wages belw he, he annual he and and payrll sum τ τ f he he ax mnhly payrll payrll rae. wages ax ax rae. rae. belw he 3.. he Scal cncep Secury f unfunded 3.. he cncep celng pad blgans f unfunded blgans he he excess excess f each f he he ndvdual presen presen value value and f f he he τ annual sum f mnhly wages belw he prjeced he prjeced payrll cs cs ax f rae. f he he prgram prgram hrugh hrugh dae ver a a specfed specfed he sum f: () he value Scal 3.. he he Secury cncep he excess US Scal Scal he celng he f Secury cncep cncep f unfunded Secury he presen admnsran pad celng f f unfunded each unfunded blgans value f defnes pad ndvdual blgans blgans he prjeced he cncep cs f unfunded f he prgram blgans hrugh (dened a specfed UO each ndvdual and τ he and payrll τ he ax payrll rae. he US Scal Secury hereafer) ax rae. 3.. he cncep Scal admnsran dae dae Secury ver as: ver f unfunded celng he he defnes sum sum blgans pad f: f: he () () each he he cncep value value ndvdual f f f unfunded rus rus fund and reserves reserves blgans τ he payrll he he (dened ax begnnng begnnng perd; rae. f f he he valuan valuan and () he presen value dae ver he excess he sum f he f: presen () value he value f he prjeced f rus cs f he reserves prgram hrugh he begnnng a specfed dae f he ver valuan he sum he US Scal 3.. he he he 3.. cncep US US Secury he Scal Scal admnsran f cncep unfunded Secury Secury f admnsran admnsran defnes he unfunded blgans blgans defnes defnes cncep he he f cncep cncep unfunded f f unfunded unfunded blgans blgans blgans (dened (dened (dened UO hereafer) as: perd; perd; f: () he and and value () () f rus he he presen presen perd; and () he presen reserves value value value f he he begnnng f f he he prjeced prjeced prjeced f he nn-neres valuan nn-neres nn-neres perd; ncme and () ncme ncme hrugh he f presen f f he he he prgram value prgram prgram a specfed dae, assumng s f he US UO Scal hereafer) 3.. Secury he cncep admnsran f unfunded defnes blgans cncep f unfunded blgans (dened UO UO hereafer) hereafer) he as: prjeced as: as: nn-neres ncme f he prgram hrugh a specfed dae, assumng scheduled ax raes hrugh hrugh a a specfed specfed dae, dae, assumng assumng scheduled scheduled ax ax raes raes and and benef benef levels. levels. he curren perd, he u UO hereafer) he US Scal hrugh he and US Secury a benef Scal specfed admnsran levels. Secury dae, admnsran assumng defnes scheduled he defnes cncep ax he raes f cncep unfunded and benef f unfunded blgans levels. blgans (dened (dened he as: US Scal Secury admnsran defnes he cncep f unfunded blgans (dened UO hereafer) UO he hereafer) as: he he curren curren he curren as: perd perd,, he he unfunded unfunded blgans blgans cmpue cmpue as as fllws: fllws: perd,, he he unfunded blgans cmpue cmpue as fllws: as fllws: UO UO hereafer) as: EC UO EC EC UO UO F F (3) F (3) (3) (3) where % s he neres facr where where. % % s he where s s he neres he neres neres facr facr a facr me a (% a me me s he value ( % ( % f he s s he real he value neres value f rae), f he he wh real real F neres (see rae), rae), appendx) he fnancal (see appendx) % s he he fnancal neres amun facr accumulaed a me n he ( % reremen s he value reserve f fund. he real neres rae), wh wh F he F frecas wh F (see (see hrzn appendx) appendx) plays a he crucal he fnancal fnancal par (Fgure amun amun 3). Wh accumulaed accumulaed he excepn n n f he he reremen scenar reremen ncludng reserve reserve he UI frecas fund. fund. hrzn plays a cruc ransfer, (see he furher appendx) he hrzn, he fnancal he mre amun he calculan accumulaed nvlves n a sgnfcan he reremen number reserve f defc fund. perds: he nal he he capal frecas frecas requremens hrzn hrzn ncrease plays plays a a wh crucal crucal he lengh par par f (Fgure (Fgure he slvency 3). 3). Wh Wh guaranee. he he excepn excepn ncludng f f he he UI ransfer, scenar scenar he furher he h he frecas hrzn plays a crucal par (Fgure 3). Wh he excepn f he scenar ncludng ncludng UI UI ransfer, ransfer, he he furher furher he he hrzn, hrzn, he he mre mre he he calculan calculan number nvlves nvlves f a a sgnfcan sgnfcan defc perds: he nal ca ncludng UI ransfer, he furher he hrzn, he mre he calculan nvlves a sgnfcan number number f f defc defc perds: perds: he he nal nal capal capal requremens requremens ncrease ncrease wh wh slvency he he lengh lengh guaranee. f f he he number f defc perds: he nal capal requremens ncrease wh he lengh f he slvency slvency guaranee. guaranee. Fgure 3: CNV unfunded blgans w slvency guaranee. Fgure Fgure 3: 3: CNV CNV unfunded unfunded blgans blgans wh wh respec respec he he me me hrzn hrzn ( ( ) ) Fgure 3: CNV unfunded blgans wh respec he me hrzn Fgure 3: CNV unfunded blgans wh respec he me hrzn ()

40 3..3 ax gap ra (G) he relave ax gap ra ( 3..3 ax gap ra (G) he relave ax gap ra ( G ) measures he excess ra f he presen value f expendures wh respec he presen value f receps. Fr a gven me hrzn, hs ra s cmpued as fllws:. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: ) measures he excess ra f he presen value f expendures wh respec he presen value f receps. Fr a gven me hrzn, hs ra s cmpued as fllws: 3..3 ax gap ra (G) he relave ax gap ra ( G ) measures he excess ra f he presen value f expendures wh respec he presen value f receps. Fr a gven me hrzn, hs ra s cmpued as fllws:. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs 3..3 ax gap ra (G) he relave ax gap ra ( G ) measures he excess ra f he presen value f expendures wh respec he presen value f receps. Fr a gven me hrzn, hs ra s cmpued as fllws:. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: and 3..3 ax gap ra (G) he relave ax gap ra ( G ) measures he excess ra f he presen value f expendures wh respec he presen value f receps. Fr a gven me hrzn, hs ra s cmpued as fllws:. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: he relave ax gap ra ( G ) measures he excess wh respec he presen value f receps. Fr cmpued as fllws: EC EX G 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng and he receps guaranee he slvency f he unfu We nrduce w adjusmen me facrs payrll ax rae and pensn benefs a me. Dev pah: and EC. s an llusran, cnsder Sweden, a pneer cncep s carred by a nnal asse-lably appr adjusmen varable: hence, s cnsraned France, where ffcal frecass are based n he p can be nerpreed as subsung he pensn pay assumpn prves rue, hen he susanably gvernmen mplcly adps a payrll ax adjusmen 3.. Ms based n he G Here, we sugges usng he G desgn a smple slvency s guaraneed afer a permanen adjusemen and he relave ax gap ra ( G ) measures he excess ra wh respec he presen value f receps. Fr a cmpued as fllws: EC G 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng pr and he receps guaranee he slvency f he unfund We nrduce w adjusmen me facrs payrll ax rae and pensn benefs a me. Devsn pah: and EC. s an llusran, cnsder Sweden, a pneer c cncep s carred by a nnal asse-lably apprac adjusmen varable: hence, s cnsraned an France, where ffcal frecass are based n he pm can be nerpreed as subsung he pensn payr assumpn prves rue, hen he susanably f gvernmen mplcly adps a payrll ax adjusmen su 3.. Ms based n he G Here, we sugges usng he G desgn a smple slvency s guaraneed afer a permanen adjusemen w. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, h respec he presen value f receps. Fr a gven me hrzn, hs ra s mpued as fllws:. F EC G (4). w examples f Ms.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures nd he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely ayrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me ah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency ncep s carred by a nnal asse-lably apprach. he pensn amun s he unque djusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n rance, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI an be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal ssumpn prves rue, hen he susanably f he CNV s guaraneed, snce he vernmen mplcly adps a payrll ax adjusmen such ha > and... Ms based n he G ere, we sugges usng he G desgn a smple M (dened G-M). When, F lvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: s cnsraned and nly ec he presen value f receps. Fr a gven me hrzn, hs ra s d as fllws:. F EC G (4) examples f Ms n ssues abu M se f an M s wrk u he fllwng prblem: hw adjus he expendures eceps guaranee he slvency f he unfunded pensn scheme? e nrduce w adjusmen me facrs and applyng respecvely x rae and pensn benefs a me. Devsng an M cnsss n desgnng a me and EC. an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency s carred by a nnal asse-lably apprach. he pensn amun s he unque n varable: hence, s cnsraned and nly adjuss. In cmparsn, n here ffcal frecass are based n he pmsc assumpn, he ransfer frm UI erpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal n prves rue, hen he susanably f he CNV s guaraneed, snce he n mplcly adps a payrll ax adjusmen such ha > and. s based n he G sugges usng he G desgn a smple M (dened G-M). When, F s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: and. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers:. 3.. Ms based n he G Here, we sugges usng he. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers: desgn a smple M (dened G-M). When. F EC G (4) 3. w examples f Ms 3.. Man ssues abu M he purpse f an M s wrk u he fllwng prblem: hw adjus he expendures and he receps guaranee he slvency f he unfunded pensn scheme? We nrduce w adjusmen me facrs and applyng respecvely payrll ax rae and pensn benefs a me. Devsng an M cnsss n desgnng a me pah: and EC. s an llusran, cnsder Sweden, a pneer cunry n adpng an M. Is slvency cncep s carred by a nnal asse-lably apprach. he pensn amun s he unque adjusmen varable: hence, s cnsraned and nly adjuss. In cmparsn, n France, where ffcal frecass are based n he pmsc assumpn, he ransfer frm UI can be nerpreed as subsung he pensn payrll ax by UI payrll ax. If he ffcal assumpn prves rue, hen he susanably f he CNV s guaraneed, snce he gvernmen mplcly adps a payrll ax adjusmen such ha > and. 3.. Ms based n he G Here, we sugges usng he G desgn a smple M (dened G-M). When, F slvency s guaraneed afer a permanen adjusemen wh he fllwng values f parameers:, slvency s guaraneed afer a permanen adjusmen wh he fllwng values f parameers:, G τ τ fr a full adjusmen by he payrll ax (5) r, G p p fr a full adjusmen by he pensn amun. (6) hese changes, based n he ax gap, can be exended mxed adjusmens, by allwng fr a pssble rade-ff beween full adjusmen by ax r by pensn. hs effec, we nrduce a ax gap elascy parameer whch weghs he degree f adjusmen by pensn. he value ly respecve defnes he elascy f he adjusmen facr (resp. ) he G. he fllwng permanen sluns are hen ancpaed: G G (7) In France, he reserve funds can be cnsdered as nl (see appendx), s hese frmulae can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusmens me hrzn fr dfferen values f n he benchmark scenar and he pruden scenar. In he w scenars (benchmark whu UI ransfers and pruden), he adjusmens by receps (resprespecvely by pensns, ) descrbe a decreasng (respecvely ncreasng) relan wh respec me hrzn fr. < he relan becmes ncreasng (resp.respecvely decreasng) fr a lnger hrzn. hese resuls llusrae he fac ha pas refrms cause, fr a full adjusmen by he payrll ax (5) r, G τ τ fr a full adjusmen by he payrll ax (5) r, G p p fr a full adjusmen by he pensn amun. (6) hese changes, based n he ax gap, can be exended mxed adjusmens, by allwng fr a pssble rade-ff beween full adjusmen by ax r by pensn. hs effec, we nrduce a ax gap elascy parameer whch weghs he degree f adjusmen by pensn. he value ly respecve defnes he elascy f he adjusmen facr (resp. ) he G. he fllwng permanen sluns are hen ancpaed: G G (7) In France, he reserve funds can be cnsdered as nl (see appendx), s hese frmulae can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusmens me hrzn fr dfferen values f n he benchmark scenar and he pruden scenar. In he w scenars (benchmark whu UI ransfers and pruden), he adjusmens by receps (resprespecvely by pensns, ) descrbe a decreasng (respecvely ncreasng) relan wh respec me hrzn fr. < he relan becmes ncreasng (resp.respecvely decreasng) fr a lnger hrzn. hese resuls llusrae he fac ha pas refrms cause, fr a full adjusmen by he pensn amun. (6) hese changes, based n he ax gap, can be exended mxed adjusmens, by allwng fr a pssble rade-ff beween full adjusmen by ax r by pensn. hs effec, we nrduce a ax gap elascy parameer, G τ τ fr a full adjusmen by he payrll ax (5), G p p fr a full adjusmen by he pensn amun. (6) changes, based n he ax gap, can be exended mxed adjusmens, by a pssble rade-ff beween full adjusmen by ax r by pensn. hs effec, we ax gap elascy parameer whch weghs he degree f adjusmen by value ly respecve defnes he elascy f he adjusmen facr he G. he fllwng permanen sluns are hen ancpaed: G G (7) nce, he reserve funds can be cnsdered as nl (see appendx), s hese frmulae ly used esmae he values f hese G-M. es 4 and 5 respecvely depc he sensvy f he adjusmens me hrzn fr lues f n he benchmark scenar and he pruden scenar. In he w enchmark whu UI ransfers and pruden), he adjusmens by receps vely by pensns, ) descrbe a decreasng (respecvely ncreasng) relan wh me hrzn fr. < he relan becmes ncreasng (resp.respecvely fr a lnger hrzn. hese resuls llusrae he fac ha pas refrms cause rw (n average) faser han expendures durng he frs decade. whch weghs he degree f adjusmen by pensn. he value, G τ τ fr a full adjusmen by he pay r, G p p fr a full adjusmen by he pens hese changes, based n he ax gap, can be exended allwng fr a pssble rade-ff beween full adjusmen by ax r by nrduce a ax gap elascy parameer whch weghs he pensn. he value ly respecve defnes he elascy (resp. ) he G. he fllwng permanen sluns are hen G G In France, he reserve funds can be cnsdered as nl (see ap can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjus dfferen values f n he benchmark scenar and he prud scenars (benchmark whu UI ransfers and pruden), he ad (resprespecvely by pensns, ) descrbe a decreasng (respecve respec me hrzn fr. < he relan becmes n decreasng) fr a lnger hrzn. hese resuls llusrae he fac receps grw (n average) faser han expendures durng he frs Fgure 4: G-M wh respec he frecas hrzn (n years): b (respecvely, G τ τ fr a full adjusmen by he payr r, G p p fr a full adjusmen by he pensn hese changes, based n he ax gap, can be exended allwng fr a pssble rade-ff beween full adjusmen by ax r by pe nrduce a ax gap elascy parameer whch weghs he de pensn. he value ly respecve defnes he elascy f h (resp. ) he G. he fllwng permanen sluns are hen an G G In France, he reserve funds can be cnsdered as nl (see appen can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusm dfferen values f n he benchmark scenar and he pruden scenars (benchmark whu UI ransfers and pruden), he adjus (resprespecvely by pensns, ) descrbe a decreasng (respecvely respec me hrzn fr. < he relan becmes ncre decreasng) fr a lnger hrzn. hese resuls llusrae he fac h receps grw (n average) faser han expendures durng he frs d Fgure 4: G-M wh respec he frecas hrzn (n years): benc ) defnes he elascy f he adjusmen facr, fr a full adjusmen by he payrll ax (5), fr a full adjusmen by he pensn amun. (6) n he ax gap, can be exended mxed adjusmens, by beween full adjusmen by ax r by pensn. hs effec, we parameer whch weghs he degree f adjusmen by ly ) cve defnes he elascy f he adjusmen facr wng permanen sluns are hen ancpaed: G G (7) ds can be cnsdered as nl (see appendx), s hese frmulae he values f hese G-M. ely depc he sensvy f he adjusmens me hrzn fr benchmark scenar and he pruden scenar. In he w UI ransfers and pruden), he adjusmens by receps ) descrbe a decreasng (respecvely ncreasng) relan wh <. he relan becmes ncreasng (resp.respecvely n. hese resuls llusrae he fac ha pas refrms cause er han expendures durng he frs decade. (respecvely, G τ τ fr a full adjusmen by he pa r, G p p fr a full adjusmen by he pens hese changes, based n he ax gap, can be exended allwng fr a pssble rade-ff beween full adjusmen by ax r by nrduce a ax gap elascy parameer whch weghs he pensn. he value ly respecve defnes he elascy (resp. ) he G. he fllwng permanen sluns are hen G G In France, he reserve funds can be cnsdered as nl (see ap can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adju dfferen values f n he benchmark scenar and he prud scenars (benchmark whu UI ransfers and pruden), he a (resprespecvely by pensns, ) descrbe a decreasng (respecve respec me hrzn fr. < he relan becmes n decreasng) fr a lnger hrzn. hese resuls llusrae he fac receps grw (n average) faser han expendures durng he frs Fgure 4: G-M wh respec he frecas hrzn (n years): b ) he, G τ τ fr a full adjusmen by he payrl r, G p p fr a full adjusmen by he pensn hese changes, based n he ax gap, can be exended allwng fr a pssble rade-ff beween full adjusmen by ax r by pe nrduce a ax gap elascy parameer whch weghs he de pensn. he value ly respecve defnes he elascy f h (resp. ) he G. he fllwng permanen sluns are hen an G G In France, he reserve funds can be cnsdered as nl (see appen can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusm dfferen values f n he benchmark scenar and he pruden scenars (benchmark whu UI ransfers and pruden), he adjus (resprespecvely by pensns, ) descrbe a decreasng (respecvely respec me hrzn fr. < he relan becmes ncrea decreasng) fr a lnger hrzn. hese resuls llusrae he fac h receps grw (n average) faser han expendures durng he frs de Fgure 4: G-M wh respec he frecas hrzn (n years): benc. he fllwng permanen sluns are hen ancpaed:, G τ τ fr a full adjusmen by he payrll ax (5) r, G p p fr a full adjusmen by he pensn amun. (6) hese changes, based n he ax gap, can be exended mxed adjusmens, by allwng fr a pssble rade-ff beween full adjusmen by ax r by pensn. hs effec, we nrduce a ax gap elascy parameer whch weghs he degree f adjusmen by pensn. he value ly respecve defnes he elascy f he adjusmen facr (resp. ) he G. he fllwng permanen sluns are hen ancpaed: G G (7) In France, he reserve funds can be cnsdered as nl (see appendx), s hese frmulae can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusmens me hrzn fr dfferen values f n he benchmark scenar and he pruden scenar. In he w scenars (benchmark whu UI ransfers and pruden), he adjusmens by receps (resprespecvely by pensns, ) descrbe a decreasng (respecvely ncreasng) relan wh respec me hrzn fr. < he relan becmes ncreasng (resp.respecvely decreasng) fr a lnger hrzn. hese resuls llusrae he fac ha pas refrms cause receps grw (n average) faser han expendures durng he frs decade. Fgure 4: G-M wh respec he frecas hrzn (n years): benchmark scenar (whu IU ransfers) (7) In France, he reserve funds can be cnsdered as nl (see appendx), s hese frmulae can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusmens me hrzn fr dfferen values f, G τ τ fr a full adjusmen by he payrll ax (5) r, G p p fr a full adjusmen by he pensn amun. (6) hese changes, based n he ax gap, can be exended mxed adjusmens, by allwng fr a pssble rade-ff beween full adjusmen by ax r by pensn. hs effec, we nrduce a ax gap elascy parameer whch weghs he degree f adjusmen by pensn. he value ly respecve defnes he elascy f he adjusmen facr (resp. ) he G. he fllwng permanen sluns are hen ancpaed: G G (7) In France, he reserve funds can be cnsdered as nl (see appendx), s hese frmulae can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusmens me hrzn fr dfferen values f n he benchmark scenar and he pruden scenar. In he w scenars (benchmark whu UI ransfers and pruden), he adjusmens by receps (resprespecvely by pensns, ) descrbe a decreasng (respecvely ncreasng) relan wh respec me hrzn fr. < he relan becmes ncreasng (resp.respecvely decreasng) fr a lnger hrzn. hese resuls llusrae he fac ha pas refrms cause receps grw (n average) faser han expendures durng he frs decade. Fgure 4: G-M wh respec he frecas hrzn (n years): benchmark scenar (whu IU ransfers) n he benchmark scenar and he pruden scenar. In he w scenars (benchmark whu UI ransfers and pruden), he adjusmens by receps G, fr a full adjusmen by he payrll ax (5), G fr a full adjusmen by he pensn amun. (6) ed n he ax gap, can be exended mxed adjusmens, by -ff beween full adjusmen by ax r by pensn. hs effec, we cy parameer whch weghs he degree f adjusmen by ly ) respecve defnes he elascy f he adjusmen facr e fllwng permanen sluns are hen ancpaed: G G (7) e funds can be cnsdered as nl (see appendx), s hese frmulae ae he values f hese G-M. ecvely depc he sensvy f he adjusmens me hrzn fr he benchmark scenar and he pruden scenar. In he w u UI ransfers and pruden), he adjusmens by receps ns, ) descrbe a decreasng (respecvely ncreasng) relan wh fr. < he relan becmes ncreasng (resp.respecvely rzn. hese resuls llusrae he fac ha pas refrms cause ) faser han expendures durng he frs decade. pec he frecas hrzn (n years): benchmark scenar (respecvely by pensns,, G τ τ fr a full adjusmen by he payrll ax r, G p p fr a full adjusmen by he pensn amu hese changes, based n he ax gap, can be exended mxe allwng fr a pssble rade-ff beween full adjusmen by ax r by pensn nrduce a ax gap elascy parameer whch weghs he degree pensn. he value ly respecve defnes he elascy f he ad (resp. ) he G. he fllwng permanen sluns are hen ancpa G G In France, he reserve funds can be cnsdered as nl (see appendx), can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusmens dfferen values f n he benchmark scenar and he pruden sce scenars (benchmark whu UI ransfers and pruden), he adjusmen (resprespecvely by pensns, ) descrbe a decreasng (respecvely ncrea respec me hrzn fr. < he relan becmes ncreasng decreasng) fr a lnger hrzn. hese resuls llusrae he fac ha p receps grw (n average) faser han expendures durng he frs decade Fgure 4: G-M wh respec he frecas hrzn (n years): benchma (whu IU ransfers) ) descrbe a decreasng (respecvely ncreasng) relan wh respec me hrzn fr, G τ τ fr a full adjusmen by he payrll ax r, G p p fr a full adjusmen by he pensn amun. hese changes, based n he ax gap, can be exended mxed adjusmen allwng fr a pssble rade-ff beween full adjusmen by ax r by pensn. hs effe nrduce a ax gap elascy parameer whch weghs he degree f adjusme pensn. he value ly respecve defnes he elascy f he adjusmen fac (resp. ) he G. he fllwng permanen sluns are hen ancpaed: G G In France, he reserve funds can be cnsdered as nl (see appendx), s hese fr can be drecly used esmae he values f hese G-M. Fgures 4 and 5 respecvely depc he sensvy f he adjusmens me hrz dfferen values f n he benchmark scenar and he pruden scenar. In h scenars (benchmark whu UI ransfers and pruden), he adjusmens by recep (resprespecvely by pensns, ) descrbe a decreasng (respecvely ncreasng) rela respec me hrzn fr. < he relan becmes ncreasng (resp.respe decreasng) fr a lnger hrzn. hese resuls llusrae he fac ha pas refrms receps grw (n average) faser han expendures durng he frs decade. Fgure 4: G-M wh respec he frecas hrzn (n years): benchmark scenar (whu IU ransfers). he relan becmes ncreasng (respecvely decreasng) fr a lnger hrzn. hese resuls llusrae he fac ha pas refrms cause receps grw (n average) faser han expendures durng he frs decade. he graphs als shw he sensvy f he adjusmen varables wh respec a. ax rae adjusmens: b. Pensn adjusmens: Fgure 5: G-M wh respec he frecas hrzn (n years): pruden scenar a. ax rae adjusmens: b. Pensn adjusmens: he graphs als shw he sensvy f he adjusmen varables wh respec. here are w lm values and meanng a full adjusmen hrugh pensns and cnrbuns respecvely. Cnsderng a 5-year hrzn, a 5.5% permanen declne n pensn s requred n he frs case ( ), as agans a 5.8% permanen ncrease n cnrbuns n he secnd case. Wh he same me hrzn and an nermedae value f.5, fnancal slvency requres a.8% permanen reducn n pensns cupled wh a.9% permanen ncrease n cnrbuns.. here are w lm values a. ax rae adjusmens: b. Pensn adjusmens: Fgure 5: G-M wh respec he frecas hrzn (n years): pruden scenar a. ax rae adjusmens: b. Pensn adjusmens: he graphs als shw he sensvy f he adjusmen varables wh respec. here are w lm values and meanng a full adjusmen hrugh pensns and cnrbuns respecvely. Cnsderng a 5-year hrzn, a 5.5% permanen declne n pensn s requred n he frs case ( ), as agans a 5.8% permanen ncrease n cnrbuns n he secnd case. Wh he same me hrzn and an nermedae value f.5, fnancal slvency requres a.8% permanen reducn n pensns cupled wh a.9% permanen ncrease n cnrbuns. and a. ax rae adjusmens: b. Pensn adjusmens: ure 5: G-M wh respec he frecas hrzn (n years): pruden scenar a. ax rae adjusmens: b. Pensn adjusmens: he graphs als shw he sensvy f he adjusmen varables wh respec. ere are w lm values and meanng a full adjusmen hrugh pensns d cnrbuns respecvely. Cnsderng a 5-year hrzn, a 5.5% permanen declne n nsn s requred n he frs case ( ), as agans a 5.8% permanen ncrease n nrbuns n he secnd case. Wh he same me hrzn and an nermedae value f.5, fnancal slvency requres a.8% permanen reducn n pensns cupled wh a % permanen ncrease n cnrbuns. meanng a full adjusmen hrugh pensns and cnrbuns respecvely. Cnsderng a 5-year hrzn, a 5.5% permanen declne n pensn s requred n he frs case ( a. ax rae adjusmens: b. Pensn adju Fgure 5: G-M wh respec he frecas hrzn (n years): pruden a. ax rae adjusmens: b. Pensn adju he graphs als shw he sensvy f he adjusmen varable here are w lm values and meanng a full adjusm and cnrbuns respecvely. Cnsderng a 5-year hrzn, a 5.5% p pensn s requred n he frs case ( ), as agans a 5.8% pe cnrbuns n he secnd case. Wh he same me hrzn and an.5, fnancal slvency requres a.8% permanen reducn n pen.9% permanen ncrease n cnrbuns S-M: smh aumac balance mechansm ), as agans a 5.8% permanen ncrease n cnrbuns n he secnd case. Wh he same me hrzn and an nermedae value f a. ax rae adjusmens: b. Pensn adjusmens: Fgure 5: G-M wh respec he frecas hrzn (n years): pruden scenar a. ax rae adjusmens: b. Pensn adjusmens: he graphs als shw he sensvy f he adjusmen varables wh respec here are w lm values and meanng a full adjusmen hrugh pens and cnrbuns respecvely. Cnsderng a 5-year hrzn, a 5.5% permanen decln pensn s requred n he frs case ( ), as agans a 5.8% permanen ncrease cnrbuns n he secnd case. Wh he same me hrzn and an nermedae value.5, fnancal slvency requres a.8% permanen reducn n pensns cupled w.9% permanen ncrease n cnrbuns S-M: smh aumac balance mechansm Usng an M derved frm a ax gap ra can be plcally and scally dffcul ap, fnancal slvency requres a.8% permanen reducn n pensns cupled wh a.9% permanen ncrease n cnrbuns. 38 USLIN JOUNL OF CUIL PCICE 4 VOLUME

41 SUSINILIY OF HE FENCH FIS PILL PENSION SCHEME (CNV) 39 Fgure 5a-b Fgure 4: G-M wh respec he frecas hrzn (n years): benchmark scenar (whu IU ransfers) Fgure 5: G-M wh respec he frecas hrzn (n years): pruden scenar hs 3..3 effec, S-M: Gannn smh e al. aumac (3) buld balance a mdel mechansm based n dynamc prgrammng called smh Usng an M derved frm a ax hs gap hs effec, ra effec, can be Gannn plcally e al. e and (3) al. (3) scally buld dffcul buld a mdel a mdel apply, based based because n n dynamc prgrammng called el based n dynamc aumac prgrammng balance nduces an mmedae called mechansm and smh (S-M). he sc-plcal sensvy changes n permanen adjusmen. bypass hs bsacle, a slun may requre devsng a smh, gradual adjusmen n cnrbun aumac raes balance and pensn mechansm levels. hs (S-M). effec, Gannn he he e sc-plcal al. (3) sensvy cha he sc-plcal legslan buld sensvy s apprehended a mdel based changes by a n dynamc n quadrac lss funcn. he dsrn cs f he receps (resp. prgrammng legslan s called apprehended smh by aumac a by a quadrac balance lss mechansm lss funcn. (S-M). he he dsrn cs cs f he f he recep s funcn. he dsrn f he he expendures) cs sc-plcal f he receps s sensvy gven (resp. a weghng changes n legslan (resp. s apprehended ). perd by a quadrac, he lss funcn. ( LF he dsrn cs f he receps f (resp. he f he f he expendures) s gven s s gven a a weghng (respecvely (resp. (resp. ). ).). perd perd, he, he lss lss func (resp. ). perd ) can be perd, wren he he lss as lss funcn fllws: ( LF ) can be wren as fllws: ) can ) can be be wren wren as as fllws: LF ( ) ( ) ( ). (8) (8) LFLF ( ( ) )( ( ) ( ). ). ) ( ) ( ). Fr a frecas hrzn (8), he S-M ams mach he sum f dscuned receps wh Fr he sake f smplcy, we use he same nan Fr as ha Fr a used a frecas he G hrzn adjusmens hrzn, because he, n S-M he S-M presenan ams ams f smulan mach mach resuls, he he sum sum f f dscuned rece re ams mach he he he sum sum parameer f dscuned f dscuned values are he same receps expendures: fr he w Ms: G and S-M. wh he he sum sum f f dscuned expendures: EC ( I ) F. (9) EC EC ( I ) ( I ) F F.. F. (9)

42 Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures: legslan s apprehended by a quadrac lss funcn. he dsrn cs f he receps (resp. f he expendures) s gven a weghng (resp. ). perd, he lss funcn ( LF ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. (9) he auhrs assume ha he scal planner has a me preference. y denng legslan s apprehended by a quadrac lss funcn. he dsrn cs f he receps (resp. f he expendures) s gven a weghng (resp. ). perd, he lss funcn ( LF ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. he publc preference fr presen rae, he dynamc prgram pmse s: legslan s apprehended by a quadrac lss funcn. he dsrn cs f he receps (resp. f he expendures) s gven a weghng (resp. ). perd, he lss funcn ( LF ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. () he frs rder cndns lead he nal pmal values f he expendures) s gven a weghng (resp. ). perd, he lss funcn ( LF ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. and f he expendures) s gven a weghng (resp. ). perd, he lss funcn ( LF ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M., whch are funcns f he unfunded blgans: ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. () he dynamcs f he adjusmen facrs can be nferred fr ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. :. EC EC () We cnsder w successve scenars: he benchmark scenar whu UI ransfer (Fgure 6) and he pruden scenar (Fgure 7). Fgures 6a and 7a prvde he smulans fr he reference values f parameers: 5.5, and.5%. ssumng he benchmark (resp. respecvely pruden) scenar, Fgure 6a (resp. respecvely Fgure 7a) shws ha mmedae adjusmens mply bh a.5% (respecvely 3.6%) reducn n pensns and a.4% (resp. respecvely 3.5%) ncrease f ax rae. In he lng run, hese adjusmens reach 4.8% (resp. respecvely 9.%) and 4.5% (resp.respecvely 9.%). In cmparsn, a G-M wuld nduce a fla adjusmen wh a.8% (6.3%) pensn reducn and.9% (6.7%) ax rae ncrease. hs s dramacally llusraed by he dynamcs f he reserve fund. Fr he benchmark scenar, ncreases frm zer (rgh vercal axs) reach n 6 a maxmum f abu 8. Over hs perd, he pensn scheme yelds a surplus. hen decreases defc perd reach n 48 a mnmum f 6. I fnally grws agan secnd perd f surplus and cancels u n 63. smlar dynamc ver a larger range prevals n he pruden scenar: n 3 reaches a maxmum f abu 93 and a mnmum f abu 7 n 57. hs () We cnsder w successve scenars: he benchmark scenar whu UI ransfer (Fgure 6) and he pruden scenar (Fgure 7). Fgures 6a and 7a prvde he smulans fr he reference values f parameers:. EC EC () We cnsder w successve scenars: he benchmark scenar whu UI ransfer gure 6) and he pruden scenar (Fgure 7). Fgures 6a and 7a prvde he smulans fr he ference values f parameers: 5.5, and.5%. ssumng he benchmark sp. respecvely pruden) scenar, Fgure 6a (resp. respecvely Fgure 7a) shws ha medae adjusmens mply bh a.5% (respecvely 3.6%) reducn n pensns and a.4% sp. respecvely 3.5%) ncrease f ax rae. In he lng run, hese adjusmens reach 4.8% sp. respecvely 9.%) and 4.5% (resp.respecvely 9.%). In cmparsn, a G-M wuld duce a fla adjusmen wh a.8% (6.3%) pensn reducn and.9% (6.7%) ax rae crease. hs s dramacally llusraed by he dynamcs f he reserve fund. Fr he benchmark enar, ncreases frm zer (rgh vercal axs) reach n 6 a maxmum f abu 8. er hs perd, he pensn scheme yelds a surplus. hen decreases defc perd ach n 48 a mnmum f 6. I fnally grws agan secnd perd f surplus and ncels u n 63. smlar dynamc ver a larger range prevals n he pruden scenar: n 3 reaches a maxmum f abu 93 and a mnmum f abu 7 n 57. hs fference s due he fac ha, n rder cmply wh a less pmsc frecas, [cnrburs and. EC EC () We cnsder w successve scenars: he benchmark scenar whu UI ransfer re 6) and he pruden scenar (Fgure 7). Fgures 6a and 7a prvde he smulans fr he rence values f parameers: 5.5, and.5%. ssumng he benchmark. respecvely pruden) scenar, Fgure 6a (resp. respecvely Fgure 7a) shws ha edae adjusmens mply bh a.5% (respecvely 3.6%) reducn n pensns and a.4%. respecvely 3.5%) ncrease f ax rae. In he lng run, hese adjusmens reach 4.8%. respecvely 9.%) and 4.5% (resp.respecvely 9.%). In cmparsn, a G-M wuld ce a fla adjusmen wh a.8% (6.3%) pensn reducn and.9% (6.7%) ax rae ase. hs s dramacally llusraed by he dynamcs f he reserve fund. Fr he benchmark ar, ncreases frm zer (rgh vercal axs) reach n 6 a maxmum f abu 8. hs perd, he pensn scheme yelds a surplus. hen decreases defc perd h n 48 a mnmum f 6. I fnally grws agan secnd perd f surplus and els u n 63. smlar dynamc ver a larger range prevals n he pruden scenar: n reaches a maxmum f abu 93 and a mnmum f abu 7 n 57. hs rence s due he fac ha, n rder cmply wh a less pmsc frecas, [cnrburs. ssumng he benchmark (respecvely pruden) scenar, Fgure 6a (respecvely Fgure 7a) shws ha mmedae adjusmens mply bh a.5% (respecvely 3.6%) reducn n pensns and a.4% (respecvely 3.5%) ncrease f ax rae. In he lng run, hese adjusmens reach 4.8% (respecvely 9.%) and 4.5% (respecvely 9.%). In cmparsn, a G-M wuld nduce a fla adjusmen wh a.8% (6.3%) pensn reducn and.9% (6.7%) ax rae ncrease. hs s dramacally llusraed by he dynamcs f he reserve fund. Fr he benchmark scenar, ncreases frm zer (rgh vercal axs) reach n 6 a maxmum f abu 8. Over hs perd, he pensn scheme yelds a surplus. hen decreases defc perd reach n 48 a mnmum f 6. I fnally grws agan secnd perd f surplus and cancels u n 63. smlar dynamc ver a larger range prevals n he pruden scenar: n 3 reaches a maxmum f abu 93 and a mnmum f abu 7 n 57. hs dfference s due he fac ha, n rder cmply wh a less pmsc frecas, larger amuns f mney mus be saved. We evaluae hree paramerc varans: lwer publc preference fr he presen rae, nducng less prcrasnan (Fgure 6b and Fgure 7b) wh. EC EC () We cnsder w successve scenars: he benchmark scenar whu UI ransfer (Fgure 6) and he pruden scenar (Fgure 7). Fgures 6a and 7a prvde he smulans fr he reference values f parameers: 5.5, and.5%. ssumng he benchmark (resp. respecvely pruden) scenar, Fgure 6a (resp. respecvely Fgure 7a) shws ha mmedae adjusmens mply bh a.5% (respecvely 3.6%) reducn n pensns and a.4% (resp. respecvely 3.5%) ncrease f ax rae. In he lng run, hese adjusmens reach 4.8% (resp. respecvely 9.%) and 4.5% (resp.respecvely 9.%). In cmparsn, a G-M wuld nduce a fla adjusmen wh a.8% (6.3%) pensn reducn and.9% (6.7%) ax rae ncrease. hs s dramacally llusraed by he dynamcs f he reserve fund. Fr he benchmark scenar, ncreases frm zer (rgh vercal axs) reach n 6 a maxmum f abu 8. Over hs perd, he pensn scheme yelds a surplus. hen decreases defc perd reach n 48 a mnmum f 6. I fnally grws agan secnd perd f surplus and cancels u n 63. smlar dynamc ver a larger range prevals n he pruden scenar: n 3 reaches a maxmum f abu 93 and a mnmum f abu 7 n 57. hs dfference s due he fac ha, n rder cmply wh a less pmsc frecas, [cnrburs mus] save larger amuns f mney. We evaluae hree paramerc varans: lwer publc preference fr he presen rae, nducng less prcrasnan (Fgure 6b and Fgure 7b) wh % lwer dsrn cs hrugh receps wh.5 (Fgures 6c and 7c) shrer frecas hrzn wh 5 (Fgures 6d and 7d). lwer publc preference fr he presen rae ( % ) ncreases he cs f prcrasnan. I resuls n srnger adjusmens n he shr run and weaker adjusmens n lwer dsrn cs hrugh receps wh. EC EC () We cnsder w successve scenars: he benchmark scenar whu UI ransfer (Fgure 6) and he pruden scenar (Fgure 7). Fgures 6a and 7a prvde he smulans fr he reference values f parameers: 5.5, and.5%. ssumng he benchmark (resp. respecvely pruden) scenar, Fgure 6a (resp. respecvely Fgure 7a) shws ha mmedae adjusmens mply bh a.5% (respecvely 3.6%) reducn n pensns and a.4% (resp. respecvely 3.5%) ncrease f ax rae. In he lng run, hese adjusmens reach 4.8% (resp. respecvely 9.%) and 4.5% (resp.respecvely 9.%). In cmparsn, a G-M wuld nduce a fla adjusmen wh a.8% (6.3%) pensn reducn and.9% (6.7%) ax rae ncrease. hs s dramacally llusraed by he dynamcs f he reserve fund. Fr he benchmark scenar, ncreases frm zer (rgh vercal axs) reach n 6 a maxmum f abu 8. Over hs perd, he pensn scheme yelds a surplus. hen decreases defc perd reach n 48 a mnmum f 6. I fnally grws agan secnd perd f surplus and cancels u n 63. smlar dynamc ver a larger range prevals n he pruden scenar: n 3 reaches a maxmum f abu 93 and a mnmum f abu 7 n 57. hs dfference s due he fac ha, n rder cmply wh a less pmsc frecas, [cnrburs mus] save larger amuns f mney. We evaluae hree paramerc varans: lwer publc preference fr he presen rae, nducng less prcrasnan (Fgure 6b and Fgure 7b) wh % lwer dsrn cs hrugh receps wh.5 (Fgures 6c and 7c) shrer frecas hrzn wh 5 (Fgures 6d and 7d). lwer publc preference fr he presen rae ( % ) ncreases he cs f prcrasnan. I resuls n srnger adjusmens n he shr run and weaker adjusmens n (Fgures 6c and 7c) shrer frecas hrzn wh. EC EC () We cnsder w successve scenars: he benchmark scenar whu UI ransfer (Fgure 6) and he pruden scenar (Fgure 7). Fgures 6a and 7a prvde he smulans fr he reference values f parameers: 5.5, and.5%. ssumng he benchmark (resp. respecvely pruden) scenar, Fgure 6a (resp. respecvely Fgure 7a) shws ha mmedae adjusmens mply bh a.5% (respecvely 3.6%) reducn n pensns and a.4% (resp. respecvely 3.5%) ncrease f ax rae. In he lng run, hese adjusmens reach 4.8% (resp. respecvely 9.%) and 4.5% (resp.respecvely 9.%). In cmparsn, a G-M wuld nduce a fla adjusmen wh a.8% (6.3%) pensn reducn and.9% (6.7%) ax rae ncrease. hs s dramacally llusraed by he dynamcs f he reserve fund. Fr he benchmark scenar, ncreases frm zer (rgh vercal axs) reach n 6 a maxmum f abu 8. Over hs perd, he pensn scheme yelds a surplus. hen decreases defc perd reach n 48 a mnmum f 6. I fnally grws agan secnd perd f surplus and cancels u n 63. smlar dynamc ver a larger range prevals n he pruden scenar: n 3 reaches a maxmum f abu 93 and a mnmum f abu 7 n 57. hs dfference s due he fac ha, n rder cmply wh a less pmsc frecas, [cnrburs mus] save larger amuns f mney. We evaluae hree paramerc varans: lwer publc preference fr he presen rae, nducng less prcrasnan (Fgure 6b and Fgure 7b) wh % lwer dsrn cs hrugh receps wh.5 (Fgures 6c and 7c) shrer frecas hrzn wh 5 (Fgures 6d and 7d). lwer publc preference fr he presen rae ( % ) ncreases he cs f prcrasnan. I resuls n srnger adjusmens n he shr run and weaker adjusmens n (Fgures 6d and 7d). Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. aumac balance mechansm (S-M). he sc-plcal sensvy changes n legslan s apprehended by a quadrac lss funcn. he dsrn cs f he receps (resp. f he expendures) s gven a weghng (resp. ). perd, he lss funcn ( LF ) can be wren as fllws:. LF (8) Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. Fr a frecas hrzn, he S-M ams mach he sum f dscuned receps wh he sum f dscuned expendures:. F EC I (9) he auhrs assume ha he scal planner has a me preference. y denng he publc preference fr presen rae, he dynamc prgram pmse s: { }. ).(. mn, I s LF () he frs rder cndns lead he nal pmal values and, whch are funcns f he unfunded blgans: EC UO EC EC UO () he dynamcs f he adjusmen facrs can be nferred fr : Fr he sake f smplcy, we use he same nan as ha used fr he G adjusmens because n he presenan f smulan resuls, he parameer values are he same fr he w Ms: G and S-M. (9) 4 USLIN JOUNL OF CUIL PCICE 4 VOLUME

43 SUSINILIY OF HE FENCH FIS PILL PENSION SCHEME (CNV) 4 Fgure 6: enchmark scenar (whu UI ransfer) 75 Fgure 6c Fgure Fgure 6a 6d Fgure 6b 5 5 Fgure 7: Pruden scenar Fgure 7a Fgure 7d Fgure 7b Fgure 7c

44 We evaluae hree he paramerc lng run. Fgures varans: 6b and 7b shw a flaer prfle f he and. In Fgure 6b, he pah f adjusmens s very smlar hse baned under G-M. Fla prfles are baned 4 USLIN lwer publc JOUNL preference OF CUIL fr he presen PCICE rae, 4 nducng VOLUME less prcrasnan (Fgure 6b when grwh raes f expendures and receps are very clse he neres rae, ne f he and Fgure 7b) wh % publc preference fr he presen rae (cmpare wh he dynamcs f adjusmen facrs). y lwer dsrn cs hrugh receps wh.5 (Fgures 6c and 7c) cnras, Fgure 7b shws a mre prnunced decrease EC EC n facrs. hs prpery resuls frm shrer frecas hrzn wh 5 (Fgures 6d and 7d). ( ) ( ) he fac ha he lng-run grwh raes f expendures EC EC and receps are lwer han he neres lwer publc preference lwer publc preference fr he fr presen he presen rae rae ( % ) ncreases he cs he f cs prcrasnan. f I resuls rae, ne f he publc preference fr he presen rae. n srnger adjusmens n he shr run and weaker adjusmens Larger mmedae n he lng run. Fgures 6b and 7b shw b rcrasnan. 6b and and 7b 7b shw shw a I flaer a resuls a prfle flaer n srnger prfle he f he he adjusmens n he shr run and weaker adjusmens n. adjusmens ( ). resul n () mre savngs beng accumulaed and and. In. Fgure In ver Fgure 6b, a 6b, he lnger 6b, he pah he pah perd. f pah adjusmens s very smlar hse baned under G-M. Fla prfles are baned when grwh raes f expendures and receps are very ry smlar hse hse baned clse under he under neres G-M. rae, ne Fla f Fla he prfles publc preference are are baned fr he presen rae (cmpare Fgures 6c and 7c llusrae he fac ha a lwer dsrn wh cs he hrugh dynamcs f receps ( adjusmen facrs). y cnras, Fgure 7b shws a mre prnunced decrease n facrs. hs prpery expendures f and and receps are are very very clse clse he he neres rae rae, ne, ne f f he he resuls.5) frm (.5) he fac ha mples We he lng-run cnsder a hgher grwh w adjusmen raes successve We f expendures cnsder cs scenars: hrugh w and expendures. receps successve he benchmark are lwer scenars: N han surprsngly, scenar he neres he benchmark whu he UI scenar ransfer w r he he presen rae rae (cmpare rae, ne wh wh f he he publc dynamcs preference f f adjusmen fr he presen facrs). rae. Larger y y mmedae adjusmens resul n mre savngs adjusmen beng accumulaed facr (Fgure ver f a expendures 6) and he pruden lnger perd. s (Fgure reduced, scenar 6) and whle (Fgure he he pruden adjusmen 7). Fgures scenar 6a facr and (Fgure f 7a receps prvde 7). Fgures s he hgher. 6a smulans and 7a prvde fr he he s shws a mre a mre prnunced decrease Fgures 6c and n n facrs. 7c llusrae hs hs he prpery fac ha reference a resuls lwer dsrn frm values frm he prfle f reference he reserve values fund f s parameers: lle mdfed because cs.5, f hrugh parameers: here 5receps and s manly (.5%.5,.5) an mples. nraempral ssumng 5 a and he.5% benchmark. ssumn g-run grwh raes raes f f expendures hgher adjusmen and and receps cs hrugh are are lwer expendures. lwer han (resp. han he N he respecvely neres surprsngly, he adjusmen facr f expendures s balancng reduced, whle effr he (resp. frm adjusmen respecvely expendures facr f receps pruden) ver receps. s hgher. scenar, he prfle Fgure pruden) f he 6a reserve (resp. scenar, fund respecvely s Fgure lle mdfed 6a Fgure (resp. 7a) respecvely shws ha Fgure lc preference fr fr he he presen because rae. here rae. Larger s manly mmedae an nraempral adjusmens balancng mmedae resul effr resul adjusmens n frm n expendures mply ver bh receps. mmedae adjusmens mply bh a.5% (respecvely 3.6%) a.5% reducn (respecvely n pensns 3.6%) reducn and a.4% n pe shrer shrer frecas hrzn ( 5) means lwer unfunded blgans. I resuls I resuls n lwer n levels lwer f levels ccumulaed ver ver a lnger a adjusmen perd. facrs (resp. (Fgures respecvely 6d and 7d). 3.5%) I fllws (resp. ncrease ha respecvely hs f shrnks ax 3.5%) rae. he range ncrease In he f he lng reserve f ax run, fund. rae. hese In adjusmens he lng run, reach hese 4.8% adjus f adjusmen facrs (Fgures 6d and 7d). I fllws ha hs shrnks he range f he reserve nd 7c 7c llusrae he he fac fac ha ha a lwer a lwer (resp. dsrn respecvely cs cs hrugh 9.%) (resp. and receps respecvely 4.5% (resp.respecvely ( 9.%) and 4.5% 9.%). (resp.respecvely In cmparsn, 9.%). a G-M In cmparsn, wuld a fund. ples a hgher a adjusmen 4 cs cs CONCLUSION hrugh nduce expendures. a fla adjusmen N N surprsngly, nduce wh a fla a he.8% he adjusmen (6.3%) pensn wh a.8% reducn (6.3%) and pensn.9% reducn (6.7%) ax and rae.9% Fgure 6: enchmark scenar (whu UI ransfer) expendures s reduced, s In whle hs whle paper, he he adjusmen we ncrease. have suded hs facr hw facr s usng f dramacally f receps Ms ncrease. culd s llusraed hgher. s hs ensure s dramacally fnancal by he sably dynamcs llusraed f he f French he by reserve he frs dynamcs pllar fund. Fr f he benchmark reserve fund. F pensn sysem fr prvae secr emplyees (CNV). w scenars are cnsdered, respecvely pmsc erve eserve fund fund s s lle lle mdfed because scenar, here here s s manly ncreases an frm an scenar, nraempral zer (rgh ncreases vercal frm axs) zer (rgh reach vercal n 6 axs) a maxmum reach f n abu 6 8 a maxmu (benchmark) and pessmsc (r pruden). he use f Ms can be parcularly useful se he pensn. scheme n au-pl expendures ver ver receps. Over hs (swrh perd, & Weaver he Over pensn ) hs s scheme perd, as avd yelds he sysemac pensn a surplus. and scheme waseful hen yelds plcal decreases a debaes surplus. defc hen perd decreases abu adpng refrms resre slvency. Unsurprsngly, reach ur n resuls 48 sress a mnmum ha reach he gvernance f n f a he mnmum I CNV fnally may grws f requre 6 agan. sgnfcan I fnally secnd reducns grws perd agan f surplus secnd and perd rzn ( ( 5 5 ) means ) lwer lwer unfunded blgans. I resuls I n n lwer lwer levels levels n pensns and a hgher cnrbun rae. cancels u n 63. cancels smlar u dynamc n 63. ver a smlar larger dynamc range prevals ver a n larger he pruden range prevals scenar: n he n pru s (Fgures 6d 6d and and 7d). 7d). I fllws I In he ha ha specal hs hs case shrnks f a fla he he adjusmen range range f f he baned he reserve wh G-M, hs requres, fr he benchmark (respecvely pruden) 3 scenar, reaches a sgnfcan a maxmum 3.8% (respecvely reaches f abu a %) maxmum reducn and a f mnmum abu pensns 93 and f abu a and.9% a 7 mnmum 57. f abu hs 7 (respecvely 6.7%) rse n he cnrbun rae. If he rulng dfference auhry (he s gvernmen) due he dfference fac seeks ha, slwer s n due and rder smher cmply fac changes, ha, wh n may a rder less se adjusmen pmsc cmply frecas, wh a less [cnrburs pmsc fre scenar (whu UI UI ransfer) rules based upn a smh M (S-M). mus] save larger amuns mus] Fr he benchmark save f mney. larger (respecvely amuns pruden) f mney. scenar, such rules ppendx: mply an n mmedae vervew.5% f (respecvely he Casse 3.6%) Nanale reducn d ssurance n pensns and Vellesse a.4% (respecvely (CNV) 3.5%) ncrease n he ax rae. In he lng run (5 years), such rules mply a 4.8% (respecvely 9.%) reducn n pensns We evaluae hree paramerc We evaluae varans: hree paramerc varans: and a he 4.5% pay-as-yu-g (respecvely 9.%) publc ncrease pensn n he ax regmes rae. represen 4.5% f he French GDP and Obvusly, he scpe f ur smulans s lmed, snce hey are based nly n w alernave frecass arund 97.8% f rerees revenues. lwer publc he preference average lwer drec fr publc he pensn presen preference (ha rae, s, excludng nducng fr he presen less wdws prcrasnan rae, and nducng (Fgure less prcras (pessmsc versus pmsc). naural exensn f ur analyss culd cnss f schasc smulans, 6b rphans whch wuld pensns) capure s a clse larger and dsrbun 5 Fgure eurs 7b) f pssble per wh mnh, adjusmens. and % 6 Fgure fr 7b) males wh and 9 % fr females. In hs paper, we fcus lwer n dsrn prvae secr cs hrugh (arund lwer dsrn receps 7% f he cs wh wrkers) hrugh.5 receps pensns (Fgures wh and 6c and n 7c).5 (Fgures 6c a PPENDIX: N OVEVIEW OF HE CISSE NIONLE D SSUNCE VIEILLESSE he (CNV) basc pensn scheme, CNV, shrer whch frecas prvdes hrzn an shrer average wh frecas pensn 5 hrzn (Fgures f 64 wh 6d eurs and 7d). per 5mnh (Fgures (n 6d and 7d). ). he pay-as-yu-g publc pensn lwer regmes publc represen preference 4.5% lwer f fr he publc French he presen preference GDP and rae arund fr ( 97.8% he % presen f ) ncreases rae ( he % cs ) f ncre rerees revenues. prcrasnan. he average drec I pensn resuls prcrasnan. (ha srnger s, excludng adjusmens I resuls wdws and n srnger n rphans he shr pensns) adjusmens run s and clse weaker n shr adjusmens run and n weak 5 he eurs Casse per mnh, Nanale 6 fr d ssurance males and 9 Vellesse fr females. (CNV) was se up n 945. In 999, here was an In aemp hs paper, we creae fcus n a prvae reserve secr fund (arund n addn 7% f he he wrkers) pay-as-yu-g pensns and cmpnen. n he basc pensn I was a scheme, CNV, whch prvdes an average pensn f 64 eurs per mnh (n ). falure, he because Casse Nanale he accumulaed d ssurance Vellesse funds are (CNV) n was very se hgh up n 945. and In hardly 999, here cmpensae was an aemp fr pas creae a reserve fund n addn he pay-as-yu-g cmpnen. I was a falure, because he accumulaed defcs. S, CNV can be cnsdered as a fully pay-as-yu-g scheme. funds are n very hgh and hardly cmpensae fr pas defcs. S, CNV can be cnsdered as a fully pay-as-yu-g scheme. CNV ndvdual pensns are cmpued as fllws (Gannn & uzé 3): CNV ndvdual pensns are cmpued as fllws (Gannn & uzé 3): and: P w λ mn, () () [.5 max( mn( ; F ); ) ] λ.5 E ()

45 and: () falure, because he accumulaed funds are n very hgh and hardly cmpensae fr pas defcs. S, CNV can be cnsdered as a fully pay-as-yu-g scheme. CNV ndvdual pensns are cmpued as fllws (Gannn & uzé 3):, mn w P λ () and: [ ] ; ; mn max.5.5 E F λ () where: P s he yearly amun f CNV pensn (pad mnhly); w s he s-called reference wage :, s a yearly wage cmpued as he 5 bes wages (under he scal secury celng ) brugh up dae accrdng he prce ndex; 3 λ s called he pensn ra, less han a maxmum f 5%; 4 s he number f years cnrbued by a gven ndvdual; 3 I s bund he scal secury celng s ha he pensn s, n fac, prprnal he fracn f he wage lwer han r equal he scal secury celng. In 4, he scal secury celng s valued a eurs per year r 39 eurs per mnh. 4 hs means ha, f an ndvdual fulfls all he cndns lad dwn by he scheme s rules, hen hs maxmum pensn prvded by CNV s 5% f he scal secury celng. where: CNV ndvdual pensns are cmpued as fllws (Gannn & uzé 3):, mn w P λ () and: [ ] ; ; mn max.5.5 E F λ () where: P s he yearly amun f CNV pensn (pad mnhly); w s he s-called reference wage :, s a yearly wage cmpued as he 5 bes wages (under he scal secury celng ) brugh up dae accrdng he prce ndex; 3 λ s called he pensn ra, less han a maxmum f 5%; 4 s he number f years cnrbued by a gven ndvdual; 3 I s bund he scal secury celng s ha he pensn s, n fac, prprnal he fracn f he wage lwer han r equal he scal secury celng. In 4, he scal secury celng s valued a eurs per year r 39 eurs per mnh. 4 hs means ha, f an ndvdual fulfls all he cndns lad dwn by he scheme s rules, hen hs maxmum pensn prvded by CNV s 5% f he scal secury celng. s he yearly amun f CNV pensn (pad mnhly);, mn w P λ () and: [ ] ; ; mn max.5.5 E F λ () where: P s he yearly amun f CNV pensn (pad mnhly); w s he s-called reference wage :, s a yearly wage cmpued as he 5 bes wages (under he scal secury celng ) brugh up dae accrdng he prce ndex; 3 λ s called he pensn ra, less han a maxmum f 5%; 4 s he number f years cnrbued by a gven ndvdual; 3 I s bund he scal secury celng s ha he pensn s, n fac, prprnal he fracn f he wage lwer han r equal he scal secury celng. In 4, he scal secury celng s valued a eurs per year r 39 eurs per mnh. 4 hs means ha, f an ndvdual fulfls all he cndns lad dwn by he scheme s rules, hen hs maxmum pensn prvded by CNV s 5% f he scal secury celng. s he s-called reference wage, s a yearly wage cmpued as he 5 bes wages (under he scal secury celng ) brugh up dae accrdng he prce ndex; 3, mn w P λ () and: [ ] ; ; mn max.5.5 E F λ () where: P s he yearly amun f CNV pensn (pad mnhly); w s he s-called reference wage :, s a yearly wage cmpued as he 5 bes wages (under he scal secury celng ) brugh up dae accrdng he prce ndex; 3 λ s called he pensn ra, less han a maxmum f 5%; 4 s he number f years cnrbued by a gven ndvdual; 3 I s bund he scal secury celng s ha he pensn s, n fac, prprnal he fracn f he wage lwer han r equal he scal secury celng. In 4, he scal secury celng s valued a eurs per year r 39 eurs per mnh. 4 hs means ha, f an ndvdual fulfls all he cndns lad dwn by he scheme s rules, hen hs maxmum pensn prvded by CNV s 5% f he scal secury celng. s called he pensn ra, less han a maxmum f 5%; 4 and: [ ] ; ; mn max.5.5 E F λ () where: P s he yearly amun f CNV pensn (pad mnhly); w s he s-called reference wage :, s a yearly wage cmpued as he 5 bes wages (under he scal secury celng ) brugh up dae accrdng he prce ndex; 3 λ s called he pensn ra, less han a maxmum f 5%; 4 s he number f years cnrbued by a gven ndvdual; 3 I s bund he scal secury celng s ha he pensn s, n fac, prprnal he fracn f he wage lwer han r equal he scal secury celng. In 4, he scal secury celng s valued a eurs per year r 39 eurs per mnh. 4 hs means ha, f an ndvdual fulfls all he cndns lad dwn by he scheme s rules, hen hs maxmum pensn prvded by CNV s 5% f he scal secury celng. s he number f years cnrbued by a gven ndvdual; s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn ( s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. ) n case hey have n reached he mnmum cnrbuve perd; s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. s he ndvdual s effecve reremen age. he cmbnan beween s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. and s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. apples wce: frs, cmpue he pensn ra s he mnmum number f y pensn (able ); F s he full reremen age hey wan draw a full-rae pe mnmum cnrbuve perd; E s he ndvdual s effecv he cmbnan beween and λ, (equan ) f he ndvdual has n rules, he pensn ra s lwered whene he age F. Secnd, cmpue he pad pr raa emprs. Ne ha ndvd even f hey have reached, unless wrked befre and have cmpleed Fur cases can be descrbed: f he ndvdual reres a reached he mnmum cn % /, meanng ha f he ndvdual reres a mnmum cnrbuve per P s 5% f he referen f he ndvdual reres a he mnmum cnrbuve ha P s pad pr raa f he ndvdual reres wh a 5% yearly dscun s app dwngraded value f λ s wage. (), f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age s he mnmum number f years cnrbued whch pensn (able ); F s he full reremen age (able ), ha s, he a hey wan draw a full-rae pensn (.5 λ ) n case mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs λ, (equan ) f he ndvdual has n cnrbued durng rules, he pensn ra s lwered whenever he ndvdual has n he age F. Secnd, cmpue he pensn per se (equa pad pr raa emprs. Ne ha ndvduals cann rere bef even f hey have reached, unless hey are very early wr wrked befre and have cmpleed years f emplymen Fur cases can be descrbed: f he ndvdual reres afer he mnmum age reached he mnmum cnrbuve perd (see als % /, meanng ha P s 5% f he ref f he ndvdual reres a he aumac full rae ag mnmum cnrbuve perd, hen 5% λ and P s 5% f he reference wage; f he ndvdual reres a he aumac full rae ag he mnmum cnrbuve perd, hen 5% λ ha P s pad pr raa emprs and less han 5 f he ndvdual reres when he r she has n rea a 5% yearly dscun s appled λ and he pr r dwngraded value f λ s ha he pensn s we wage.. Secnd, cmpue he pensn per se () because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached s he mnmum number f years cnrbued whch s requred draw a full ra pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn r λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he schem rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reac he age F. Secnd, cmpue he pensn per se (equan ) because he pens pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able even f hey have reached, unless hey are very early wrkers (ha s, hse wh h wrked befre and have cmpleed years f emplymen, and herefre cnrbun Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle ha reached he mnmum cnrbuve perd (see als able ), hen 5% λ % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reach he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, h a 5% yearly dscun s appled λ and he pr raa emprs s appled dwngraded value f λ s ha he pensn s well belw 5% f he average wage., unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s s, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) n f hey have reached, unless hey are very early wrkers (ha s, hse wh have ked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. and s he mnmum number f years cnrbued pensn (able ); F s he full reremen age (able ), ha s hey wan draw a full-rae pensn (.5 λ ) n mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wc λ, (equan ) f he ndvdual has n cnrbued du rules, he pensn ra s lwered whenever he ndvdual he age F. Secnd, cmpue he pensn per se ( pad pr raa emprs. Ne ha ndvduals cann rer even f hey have reached, unless hey are very earl wrked befre and have cmpleed years f emply Fur cases can be descrbed: f he ndvdual reres afer he mnmum reached he mnmum cnrbuve perd (s % /, meanng ha P s 5% f f he ndvdual reres a he aumac full r mnmum cnrbuve perd, hen 5% λ P s 5% f he reference wage; f he ndvdual reres a he aumac full r he mnmum cnrbuve perd, hen λ ha P s pad pr raa emprs and less f he ndvdual reres when he r she has n a 5% yearly dscun s appled λ and h dwngraded value f λ s ha he pensn wage., meanng ha s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra an ) f he ndvdual has n cnrbued durng he perd se by he scheme s e pensn ra s lwered whenever he ndvdual has n waed unl he has reached F. Secnd, cmpue he pensn per se (equan ) because he pensn s raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) hey have reached, unless hey are very early wrkers (ha s, hse wh have befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. ) and has reached he mnmum cnrbuve perd, hen s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. and s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage., meanng ha s he mnmum number f years cnrbued pensn (able ); F s he full reremen age (able ), ha s hey wan draw a full-rae pensn (.5 λ ) n mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wc λ, (equan ) f he ndvdual has n cnrbued du rules, he pensn ra s lwered whenever he ndvdua he age F. Secnd, cmpue he pensn per se ( pad pr raa emprs. Ne ha ndvduals cann rer even f hey have reached, unless hey are very earl wrked befre and have cmpleed years f emply Fur cases can be descrbed: f he ndvdual reres afer he mnmum reached he mnmum cnrbuve perd (s % /, meanng ha P s 5% f f he ndvdual reres a he aumac full r mnmum cnrbuve perd, hen 5% λ P s 5% f he reference wage; f he ndvdual reres a he aumac full r he mnmum cnrbuve perd, hen λ ha P s pad pr raa emprs and less f he ndvdual reres when he r she has n a 5% yearly dscun s appled λ and h dwngraded value f λ s ha he pensn wage. s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. ) and has n reached he mnmum cnrbuve perd, hen s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s les, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached e age F. Secnd, cmpue he pensn per se (equan ) because he pensn s ad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) en f hey have reached, unless hey are very early wrkers (ha s, hse wh have rked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. and s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s s, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) n f hey have reached, unless hey are very early wrkers (ha s, hse wh have ked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage., meanng ha s he mnmum number f years cnrbued whch pensn (able ); F s he full reremen age (able ), ha s, he a hey wan draw a full-rae pensn (.5 λ ) n case mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs λ, (equan ) f he ndvdual has n cnrbued durng rules, he pensn ra s lwered whenever he ndvdual has he age F. Secnd, cmpue he pensn per se (equa pad pr raa emprs. Ne ha ndvduals cann rere bef even f hey have reached, unless hey are very early w wrked befre and have cmpleed years f emplymen Fur cases can be descrbed: f he ndvdual reres afer he mnmum age reached he mnmum cnrbuve perd (see als % /, meanng ha P s 5% f he re f he ndvdual reres a he aumac full rae a mnmum cnrbuve perd, hen 5% λ and P s 5% f he reference wage; f he ndvdual reres a he aumac full rae a he mnmum cnrbuve perd, hen 5% λ ha P s pad pr raa emprs and less han f he ndvdual reres when he r she has n rea a 5% yearly dscun s appled λ and he pr dwngraded value f λ s ha he pensn s w wage. s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled s he mnmum number f years cnrbued whch s requred draw a full rae pensn (able ); F s he full reremen age (able ), ha s, he age when peple mus rere f hey wan draw a full-rae pensn (.5 λ ) n case hey have n reached he mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, cmpue he pensn ra λ, (equan ) f he ndvdual has n cnrbued durng he perd se by he scheme s rules, he pensn ra s lwered whenever he ndvdual has n waed unl he has reached he age F. Secnd, cmpue he pensn per se (equan ) because he pensn s pad pr raa emprs. Ne ha ndvduals cann rere befre a mnmum age (able ) even f hey have reached, unless hey are very early wrkers (ha s, hse wh have wrked befre and have cmpleed years f emplymen, and herefre cnrbuns). Fur cases can be descrbed: f he ndvdual reres afer he mnmum age (see able ) whle havng reached he mnmum cnrbuve perd (see als able ), hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has reached he mnmum cnrbuve perd, hen 5% λ and % /, meanng ha P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age ( F ) and has n reached he mnmum cnrbuve perd, hen 5% λ and % < /, meanng ha P s pad pr raa emprs and less han 5% f he reference wage; f he ndvdual reres when he r she has n reached hese perds/ages, hen, a 5% yearly dscun s appled λ and he pr raa emprs s appled he dwngraded value f λ s ha he pensn s well belw 5% f he average wage. and he pr raa emprs s appled he dwngraded value f pensn (able ); F s he full reremen age (able ), ha s, he ag hey wan draw a full-rae pensn (.5 λ ) n case h mnmum cnrbuve perd; E s he ndvdual s effecve reremen age. he cmbnan beween and apples wce: frs, λ, (equan ) f he ndvdual has n cnrbued durng h rules, he pensn ra s lwered whenever he ndvdual has n he age F. Secnd, cmpue he pensn per se (equa pad pr raa emprs. Ne ha ndvduals cann rere befr even f hey have reached, unless hey are very early wrk wrked befre and have cmpleed years f emplymen, a Fur cases can be descrbed: f he ndvdual reres afer he mnmum age reached he mnmum cnrbuve perd (see als % /, meanng ha P s 5% f he refe f he ndvdual reres a he aumac full rae age mnmum cnrbuve perd, hen 5% λ and P s 5% f he reference wage; f he ndvdual reres a he aumac full rae age he mnmum cnrbuve perd, hen 5% λ a ha P s pad pr raa emprs and less han 5 f he ndvdual reres when he r she has n reac a 5% yearly dscun s appled λ and he pr ra dwngraded value f λ s ha he pensn s well wage. s ha he pensn s well belw 5% f he average wage. In 3, a premum was nrduced n rder prvde sme ncenves fr peple wrk laer. hs premum amuns 3% f he pensn he frs year, 4% ver he fllwng hree years and 5% n he ffh year f he ndvdual s aged mre han 65. he las frecass (Cnsel d renan des reraes, ) have evdenced he emergency f cre adjusmens guaranee susanably f he French pensn sysem. Under hs cnsran, he yraul gvernmen has aken measures n 3..6 pn ncrease n he cnrbun rae, pad equally by wrkers and emplyers, s scheduled beween 4 and 7, n rder resre he CNV fnancal balance. Hence, fr each f hem, he cnrbun rae wll ncrease by.3 pns. If here are n her adjusmens, he wage earners cnrbun rae wll reach 6.4% f he wage under he celng, plus.4% f her al wage, and he emplyers cnrbun wll be 8.45% f he bunded wage plus.9% f he al wage. hs las 3 refrm als ncludes a hardshp accun, he purpse f whch s cmpensae fr he edusness f ceran jbs hrugh an early reremen r a ranng perd. Please ne ha ur smulans d n ake accun f he css nduced by hs accun. 3 I s bund he scal secury celng s ha he pensn s, n fac, prprnal he fracn f he wage lwer han r equal he scal secury celng. In 4, he scal secury celng s valued a eurs per year r 39 eurs per mnh. 4 hs means ha, f an ndvdual fulfls all he cndns lad dwn by he scheme s rules, hen hs maxmum pensn prvded by CNV s 5% f he scal secury celng. 43 SUSINILIY OF HE FENCH FIS PILL PENSION SCHEME (CNV)

46 44 USLIN JOUNL OF CUIL PCICE 4 VOLUME able : Mnmum ages and cnrbuve perds fr PYGO basc pensn scheme afer he 3 refrm rh year : mnmum cnrbuve perd (years) pplcan year Mnmum age F (full reremen age) befre efre q. * q q q. 6 4 m m m m q. 4 6 m. 66 m q m m q q q q q q * q. quarer m. mnh

47 SUSINILIY OF HE FENCH FIS PILL PENSION SCHEME (CNV) 45 blgraphy ndrews, D. (8). re aumac balancng mechansms apprprae fr prvae secr defned benef pensn plans?. Paper presened a he 8 eremen / Cnference Defnng he Characerscs f he s Cenury eremen Sysem, Nvember 7 8, Washngn DC (US). rus, P., & Caffe, J.C. (3). Quelle es la crssance penelle de la France? Naxs, Specal epr, 3 julle, n. 4, 7 p.. lanche, D., & Legrs, F. (). France: he dffcul pah cnsensual refrms. In Marn Feldsen & Hrs Seber (eds), Scal secury pensn refrm n Eurpe, Unversy f Chcag Press,9-7. swrh., & Weaver, K. (). Scal secury n au-pl: nernanal experence wh aumac mechansms. Cener fr eremen esearch a sn Cllege Wrkng Paper N. -8. Caprea, J. C. (6). uldng aumac slvency n U.S. scal secury: nsghs frm Sweden and Germany. Plcy bref, rkng Insuns, n. 5. Cnsel d renan des reraes. (). eraes : perspecves, 4 e 6. Onzème rappr, Décembre. Gannn F., & uzé, V. (3). Pensn rules and mplc margnal ax raes n France. In Mchèle Vanmaele e al (eds), Prceedngs f he 3 acuaral and fnancal mahemacs cnference, russels, Gannn F., Legrs, F., & uzé, V. (3). umac adjusmen mechansms and budge balancng f pensn schemes. Paper presened a he FI/EM PSS Lfe Cllquum, 4 6 June 3, Lyn, France. Hamayn, S., & Legrs, F. (). Cnsrucn and mpac f a buffer fund whn he French PYG pensn scheme n a dem-ecnmc mdel, CESf Wrkng Paper, n. 53. Hamayn, S., & Legrs, F. (7). Perspecves du sysème de rerae franças après la réfrme Flln. In Les eraes, Lbres pnns d expers eurpéens, Ecnmca, Pars, 38 p. Phllps,. W. (958). he relanshp beween unemplymen and he rae f change f mney wages n he Uned Kngdm Ecnmca, 5(): Sakam, J. (3). umac balancng mechansms. Paper presened a he FI/EM PSS Lfe Cllquum. 4 6 June 3, Lyn, France. Scherman, K.G. (). umac balancng mechansms and scal secury. Paper presened a he PSS semnar n Ednburgh 6 7 Sepember. Seergren, O. (). he aumac balance mechansm f he Swedsh pensn sysem. Wrkng Papers n Scal Insurance, :, Nanal Scal Insurance ard. urner, J.. (9). Scal secury fnancng: umac adjusmens resre slvency. P Publc Plcy Insue esearch epr, February. Vdal-Mela, C., ad-penas, M., & Seergren, O. (9). umac balance mechansms n pay-as-yu-g pensn sysems. Geneva Papers n sk and Insurance Issues and Pracce, 34(): Dr Frédérc Gannn PhD [email protected] Frédérc Gannn hlds a PhD n ecnmcs frm Unversy f Pars-Nanerre. He s an sscae Prfessr a he Unversy f Le Havre n France. Hs research fcuses n scal newrks, he fnancng f pensn schemes, and research and develpmen allances n lgply. Dr Sephane Hamayn PhD [email protected] Séphane Hamayn s French and graduaed as Dcr n Ecnmcs frm he Unversy f Pars-Nanerre. He acqured specfc experence n he subjec f pensn sysems hrugh hs cnrbuns 4 Whe ks suppred by he Eurpean Unn and he Wrld ank. ecr Flrence Legrs PhD [email protected] ecr Flrence Legrs s prfessr a he Unversy f Pars Dauphne, where she s drecr f he Insurance Schl, f he M ank-fnance and Insurance, and f he E-M Insurance. Her research deals wh ageng, pensns, scal plces and savngs, and her effecs n ecnmc grwh and fnancal flws. She als acs as cnsulan nernanal admnsrans, has served as an exper n he French Prme Mnser s pensns advsry cuncl and as a scenfc advser fr varus nsuns. eween 8 and she was chef educan ffcer (ecr) fr he egn f urgundy (France). eween 999 and 4 she was depuy drecr f CEPII, where she acvely k par n he crean f he Eurpean newrk Enepr. Flrence Legrs has wren numerus publcans, papers and bks dealng wh ageng ecnmcs. Dr Vncen uzé PhD [email protected] Vncen uzé hlds a PhD n ecnmcs frm Unversy f Pars-Nanerre. He s Senr Ecnms a he OFCE (Scences P, Pars). Hs research manly fcuses n he ecnmcs f ageng and n he fnancng f pensn schemes. knwledgmens We wuld lke hank he annymus referee and nhny sher fr her valuable cmmens and crrecns whch sgnfcavely mprved he qualy f he paper. Of curse, all remanng errrs wuld be urs. We als hank he JP eam fr s precus edral asssance.

48 46 USLIN JOUNL OF CUIL PCICE 4 VOLUME

49 47 Wha can we learn frm ppulan ras D DOUG NDEWS SC Dr Dug ndrews cuares and hers fen use ras deermne hsrcal changes and make predcns abu fuure cndns. hs paper cnsders he usefulness f usng ppulan ras predc he fuure fnancal mpac n scal suppr sysems. I defne w cmmn ppulan ras and shw he drecn f he predced fnancal mpac n scal suppr css f ppulan agng usng hese ras. I presen he analyss f w researchers, Spjker and MacInnes, and ne hw her analyss cnradcs he predcns ndcaed by he cmmn ppulan ras. I cnsder dfferences beween scal suppr sysems wh respec healh and lng erm care and hse prvdng reremen ncme. I cnsder w ways n whch Sweden s akng seps make he burden ndcaed by ppulan ras mre bearable, wh respec reremen ncme. Unfrunaely Sweden s calculan f he asses s flawed and s he adjusmens requred by he M are unfarly advanageus pensners and unfarly dsadvanageus fuure cnrburs. Hwever, a cncep develped fr he esman f asses, urnver duran, s useful. I prpse w new ppulan ras, refned ncrprae cmpnens f urnver duran, and llusrae hs apprach usng nfrman cncernng he Swedsh pensn sysem. I prpse fur recmmendans. JP 4; : KEYWODS age f full enlemen, aumac balance mechansm, nnal defned cnrbun, ld age suppr ra, PYGO, ppulans ras, real elderly dependency ra, urnver duran

50 48 USLIN JOUNL OF CUIL PCICE 4 VOLUME WO COMMON POPULION IOS he ld age dependency ra (OD) s usually defned as he ra f he ppulan aged 65 and ver he remanng adul ppulan, ypcally hse aged lhugh ne mgh chse a dfferen defnn f he adul ppulan less han age 65, such as hse aged 64. he OD s nrmally a fracn less han ne. If hs number s ncreasng, ndcaes ha he sze f he age 65 and lder ppulan s ncreasng relave he remanng adul ppulan. Occasnally research wll be presened usng he ld age suppr ra (OS). he OECD calculaes hs ra as he ppulan aged 64 dvded by he ppulan aged 65 and ver. hs ra apprxmaes he nverse f he OD; hence, a declnng OS cnveys he same message as an ncreasng OD. he OS s nrmally greaer han ne. One apprach make predcns abu he fnancal burden f scal suppr sysems n he fuure s examne hw hese ppulan ras are expeced change ver me. Infrman s avalable regardng he prjeced szes f he varus ppulan grups. hs nfrman s cnsdered relavely relable because ppulan daa s cnsdered easer predc and less vlale han, say, ecnmc daa. Smplscally, nce a persn s brn, he r she ges ne year lder each year. hs vew s verly smplsc, especally fr lngrange prjecns, fr a number f reasns. Fr hse already brn, n many nsances, hey d ge ne year lder each year. u n everyne wll. here wll be sme deahs each year and s necessary make assumpns regardng he ages a whch such deahs ccur. ased n prbables, a vasly greaer prprn f he deahs wll ccur a ages 65 and lder, whch s cmfrng fr hse calculang OD and OS. Hwever, s sll mpran esmae he age a deah. Varus sudes have shwn ha he raes f mraly abve age 65 are decreasng n develped cunres. Mrever, here are genune dfferences n pnn abu wha he rae f mraly mprvemen a hgher ages wll be n he fuure. hs assumpn affecs he ppulan ras. u hs s he srnger bass fr he ppulan ras. w her facrs, whch are mre dffcul predc, are he brh rae and he mmgran rae. a rae f apprxmaely. brhs per adul female (referred as he replacemen rae), a ppulan s cnsdered be n a seady sae (n erms f numbers). In develped cunres ver he las fve decades we have bserved a rend ward declnng brh raes. Ms develped cunres brh rae has fallen belw he replacemen rae, as shwn n able. fallng brh rae nfluences he dsrbun f he ppulan. When he brh rae s belw he able : al ferly raes: number f chldren brn wmen aged 5 49, 97 Cunry usrala Canada France Germany Ialy Japan Suh Krea Mexc Span Sweden UK US Surce: OECD (3) p.79 fr 98 5 and Ppulan eference ureau (4) fr 97. replacemen rae we bserve an ageng ppulan, ha s, he ppulan dsrbun s becmng mre heavly weghed ward lder ages. hs affecs he ppulan ras. Hwever, frm he vewpn f makng frecass, predcng fuure brh raes s dffcul. One can bserve cnsderable vlaly n he brh raes and dfferen paerns by cunry. lhugh we can bserve ha wmen n develped cunres are havng her frs chld a a laer age n lfe, s hard knw wheher hs wll resul n fewer chldren per adul wman r wheher he mng f chld brhs has changed, bu al numbers are remanng he same (r are ncreasng). Wh respec mmgran, s largely affeced by gvernmen plcy and sc-ecnmc cndns by cunry. hese change ver me and are dffcul predc. I akes lng perds f me answer hs quesn. In cnclusn, here s n quesn ha he ppulan ras are crude measures and blun nsrumens n ryng predc he fuure fnancal mpac f scal suppr sysems. Neverheless, hese ras are cmmnly used. Wha d hey shw? able shws he change n OS, by dvdng he OS n 8 by he prjeced OS n 5. Frm he able we can see ha he ras f he OS n 8 he prjeced OS n 5 are enrmus fr Suh Krea and Mexc, 4. and ver 3.5 respecvely and very sgnfcan fr Span and Japan,

51 WH CN WE LEN FOM POPULION IOS? 49 able : he ld age suppr ra (OS) and prjeced OS Cunry OS 8 OS 5 Change (8 ver 5) usrala Canada France Germany Ialy Japan Suh Krea Mexc Span Sweden UK US Surce: uhr s calculans and OECD (4). apprxmaely.5 and.3, respecvely. he cunres wh he leas sgnfcan ra are Sweden and he UK, each abu.5. In frecasng he fnancal burden f ur scal suppr sysems fr he elderly, such ra analyss s fen used. I ndcaes a sgnfcanly ncreasng burden. HE EL ELDELY DEPENDENCY IO Spjker and MacInnes (3a, 3b) defne he real elder dependency ra (ED) as he al number f peple wh a remanng lfe expecancy f 5 years r less dvded by he number f peple acually wrkng, regardless f her age. hey argue ha hs measure s a beer ne use han OD when cnsderng he fnancal mpac f an ageng ppulan. hey crcse he OD n several grunds. Frs, hey argue ha OD s n a measure f dependency (he D n OD). ecause OD reas hse age 65 and lder as dependen, s crcsed as beng bh brad a measure and narrw a measure. I s brad because here are hse age 65 and lder wh cnnue wrk full me, wh are n dependen by any defnn, her han chrnlgcal age. I s narrw a measure, n nly because here are lder peple wh are n ye age 65 wh have lef he labur frce and mgh be cnsdered dependen, bu als because here are a number f aduls well belw age 65 wh are dependen. Secnd, f OD s nended prvde an ndcan f he fnancal burden f he elderly, hen Spjker and MacInnes (3a, 3b) argue ha a beer prxy fr he burden s he sze f he ppulan expeced be whn he las 5 years f lfe, ha s, whn 5 years f expeced deah. hey argue ha due he cmbnan f medcal and sc-ecnmc facrs, such as beer nurn, medcal advances and mre years f educan, he greaes prn f medcal expenses s asscaed wh he laer years f lfe. Hence examnng he relave sze f he ppulan expeced be whn he las 5 years f lfe s a beer prxy fr fnancal mpac. hs s he gs f her argumen, bu he punch lne cmes when hey presen he behavur f he OD and ED ver varus me perds fr a varey f develped cunres (Spjker & Macnnes 3b, Fgure 4). OD has been ncreasng, reflecng an ageng ppulan, and rasng cncerns regardng sgnfcan css asscaed wh an ageng ppulan. Wh ne excepn Japan ED has been level r decreasng. Hence, Spjker and MacInnes cnclude here shuld n be cncern abu he cs burden f an ageng ppulan. In January 4, he Scey f cuares (SO) held s ffh sympsum, enled Lvng. (he papers dscussed a hs sympsum wll be publshed laer n 4. Observans drawn frm he sympsum are based n my nes and recllecn.) cenral pn f debae s wheher here s sme naural lm human lfe, perhaps arund years, r wheher hrugh medcal and echnlgcal develpmens we can vrually elmnae dsease r fnd means repar, replace r renfrce he bdy s ha lfe can be exended sgnfcanly (r pssbly frever). hs s n a quesn I wll aemp answer. Nneheless, here seems be munng evdence ha fr many peple n develped cunres we have been able pspne he nslaugh f faal dsease. N nly are peple lvng lnger han n prevus decades, n average, bu als he healh saus f peple a lder ages s beer han was fr peple f a cmparable age n prevus decades, n average. In her wrds, here has been a general reducn n mraly raes and here has been a cmpressn f mrbdy. Mrever, here s sme evdence sugges ha he medcal and care cs ncurred n he las cuple f years precedng deah decreases as age a deah ncreases. ll hs evdence prvdes suppr fr Spjker s and MacInnes argumen (3b) ha he OD s sendng he wrng sgnal wh respec healh and care css. Fr such css ED may well be a beer ndcar.

52 5 USLIN JOUNL OF CUIL PCICE 4 VOLUME 3 LONGE HELHY LIVES FFEC DIFFEEN SOCIL SUPPO SYSEMS DIFFEENLY Hwever, hs argumen des n hld wh respec PYGO pensn css. Many cunres sll have age 65 as he FE fr pensns. lhugh ncreases n he FE have been annunced n abu ne-half f he OECD cunres, cunres have been very slw ncrease he FE. Cnsequenly as average age a deah has ncreased, he perd fr whch pensn paymens have been pad and are expeced be pad has ncreased. Mrever, as he ra f hse age 65 and lder has ncreased relave he remanng wrkng age ppulan, he burden f payng PYGO pensns mus be brne by a prprnaely smaller base. I s rue ha OD s a very crude measure. u wh respec PYGO pensn css, OD sends he rgh sgnal abu he ncreasng burden and ur ably bear hs burden. ED s n an apprprae measure fr hese css because excludes he perd f ncme recep frm pensn cmmencemen he me ha peple are expeced be whn 5 years f deah. Hence, whle he news s gd ha we can expec lve lnger and reman healher fr lnger perds f me, n he absence f any dramac changes he FE we can expec he al expendures (css) asscaed wh PYGO pensns cnnue ncrease. u hs s jus ne aspec f wheher he css are mre r less affrdable. he her aspec s he sze f he ax base supprng hese css. he crcal facrs affecng hs sze depend n mraly, brh raes and mmgran. s ned, mraly raes have decreased sgnfcanly. here s lle rm fr furher decreases n he mraly raes fr he pre-reremen age ppulan. s shwn n able, fr many develped cunres, brh raes have fallen belw he replacemen rae. I s n uncmmn n makng frecass assume ha brh raes wll reman belw he replacemen rae. ccrdngly he relave sze f he ra f pre-reremen aduls rered aduls s shrnkng, ha s, here s an ageng ppulan. hs makes he PYGO pensn burden less affrdable han prevusly. Immgran s dffcul frecas. Perhaps cunres wll ncrease mmgran a pre-reremen wrkng ages help make he pensn burden mre affrdable. here s n way f ellng. lhugh n a number f develped cunres here are plcal pares ha ppse mmgran. In summary, OD may n be sendng he rgh message wh respec he fuure burden f healh and care css. ED may be a beer ndcar f hs burden. Wh he excepn f Japan, ED prvdes gd news. Hwever, wh respec PYGO pensn css OD s sendng he rgh ndcan. ED s n a suable measure use. I can be expeced ha he fnancal burden asscaed wh PYGO pensn css wll becme mre dffcul bear. 4 OWD LNCING HE PENSION UDEN Varus appraches have been suggesed make PYGO pensn css mre affrdable n he face f an ageng ppulan. he suggesns fen nvlve eher reducng benefs (expendures) r ncreasng cnrbuns (revenues). One slun ha cmbnes reducng expendures wh ncreasng revenues s rase he FE. s he FE s rased, he expeced perd f pensn paymen s shrened, whch reduces he verall pensn cs. ls, he sze f he pre-reremen adul grup ncreases, spreadng he burden f pensn css mre bradly, ha s, requrng less revenue per capa. One mgh se he FE and adjus perdcally ry manan an equvalen perd f benef recep he perd f cnrbuns, acrss generans. he FE mgh be seleced manan a cnsan rae f he ra f lfe expecancy abve FE perd f wrk (and cnrbun) prr he FE. bu ne-half f he OECD cunres have apprved an FE hgher han age 65 (OECD 3). Hwever, few cunres have adped an apprach where FE wuld ncrease based n a ra, as suggesed abve. here are varus reasns fr hs. Sme are admnsrave: s easer wrk wh a se age, peple can plan fr reremen beer when here s a se age: adjusng he age annually requres effr and sysems changes. he apprach mgh als be ppsed n he grunds f farness. On average, hse f hgher sc-ecnmc saus lve lnger. asng he FE wuld have a much greaer mpac n he al expeced pensn fr smene n a lwer sc-ecnmc grup han wuld fr smene n a hgher sc-ecnmc grup. ccrdngly he prpsal s regressve. In he remander f hs paper I examne sme aspecs f hw Sweden s nanal pensn sysem addresses he fnancal burden. Sweden has adped a nnal defned cnrbun (NDC) plan as he man cmpnen f s nanal pensn sysem (referred as he nkmspensn). he cnrbun rae s fxed: 6 per cen f elgble earnngs. ccuns are mananed fr each cnrbur, shwng he nnal balance. u he sysem peraes n a PYGO bass, s he funds cnrbued are used pay benefs as requred. w characerscs f he sysem ha are used manan fnancal balance are regular adjusmens FE and he adpn f an M. able 3 shws hw FE needs be adjused by chr n rder manan he same replacemen rae.

53 WH CN WE LEN FOM POPULION IOS? 5 able 3: Increases n reremen age necessary manan cnsan pensn Chr brn n Lfe expecancy a age years 5 mnhs 65 eremen age ensure he same replacemen rae years 4 mnhs 65 years 9 mnhs years 7 mnhs 67 years 6 mnhs years 6 mnhs 68 years 3 mnhs years mnhs 68 years 8 mnhs Surce: arn & xelssn () p. 4. In an NDC sysem he amun f pensn s deermned by he sze f he accumulaed nnal accun a reremen and he annuy dvsr appled. manan farness amng hse n dfferen years f pensn cmmencemen, he annuy dvsr s regularly ncreased reflec ncreases n lfe expecancy a FE. nher mpran cmpnen n ensurng ha he pensns deermned and beng pad are affrdable s he calculan f fnancal balance. If he plan s n n fnancal balance an adjusmen s made hrugh he M by reducng he cred accuns and by reducng he scheduled ncreases pensns, as requred. calculae fnancal balance, a balance shee shwng he esmaed value f asses and lables s prepared. If lables exceed asses hen he M s appled reduce he lables s ha he balance shee balances. he lables are calculaed as he curren value f he nnal accuns plus an esmae f he presen value f pensns n paymen. he asses are calculaed as acual asses plus he value f he expeced cnrbuns. I s hs laer calculan ha s flawed. 5 UNOVE DUION IS MISPPLIED U I CN POVIDE INSIGH he value f expeced cnrbuns s esmaed as he annual cnrbuns mulpled by he urnver duran (D). D s he sum f pay-n duran and pay-u duran. I s calculaed as he dfference n years beween he weghed-average age a whch pensns wuld be expeced be pad mnus he FE (referred as pay-u duran) and he FE mnus he weghedaverage age a whch cnrbuns wuld be expeced be cnrbued (referred as pay-n duran). hs s a seady-sae mdel based n he assumpn ha cnrbuns were made n a lump sum and pensns were pad n a lump sum. he prblem s ha n an NDC mdel each cnrbun creaes a fuure pensn lably. herefre he annual cnrbun shuld be mulpled nly by he duran calculaed as he dfference beween he expeced FE and he weghed-average age a whch cnrbuns wuld be expeced be cnrbued, ha s, fr he pay-n duran. Durng he perd beween he weghed-average age a whch pensns can be expeced be pad and he expeced FE, ha s, he pay-u duran, any cnrbuns wuld creae a cmparable lably. hs lably has n been refleced n he balance shee. he cnsequence s ha asses are ver-esmaed. ccrdngly he sysem des n balance accuns and pensns n paymen sn enugh. hs s unfarly advanageus pensners and unfarly dsadvanageus fuure cnrburs. Fr a very smple llusran f he prblem, suppse ha he sysem had nly ne cnrbur wh cnrbued fr 4 years and whse lfe expecancy as a pensner was years. calculae he lables, we wuld ake he weghed average f he pensn paymens and assume ha hey were pad u n a lump sum ne-half way hrugh he -year perd f reremen, ha s, a me FE plus years. Fr he asses, we wuld ake he weghed average f he cnrbuns and assume ha hey were pad n as a lump sum ne-half way hrugh he 4 year perd f cnrbun. ssumng cnrbuns and pensn paymens are each made n he mddle f he year, he arhmec s as fllws. Cnrbuns: C (-.5) (4C) where,,, 4 and all he C C [] Pensn paymens: P (-.5) (P) where,,, and all he P P [] Equan [] shws ha 4 mes he annual cnrbuns are n he sysem fr years (n average), ha s, he pay-n duran. hs represens he asses. Equan [] shws ha mes he annual pensn paymens are n he sysem fr years (n average), ha s, he pay-u duran. hs represens he lables. Hwever, n he Swedsh balance shee he asses are calculaed as hugh 4 mes he annual cnrbuns are n he sysem fr 3 years, ha s, he pay-n duran plus he pay-u duran. In rder have such asses, sme her cnrbur, wh des n exs n ur exremely smple example, wuld have make cnrbuns durng he -year pay-u duran. Of curse, f we were expand he sysem beynd ne ndvdual, s que pssble ha here wuld be anher cnrbur wh culd cnrbue durng he

54 5 USLIN JOUNL OF CUIL PCICE 4 VOLUME -year pay-u duran. In a pure PYGO sysem ha wuld lkely be he case. Hwever, he Swedsh sysem s n pure PYGO, s ryng esablsh a balance shee. he cnrbuns made by he her cnrbur durng he year pay-u duran fr he frs cnrbur wuld creae a new lably, ha s, a lably n respec f he secnd cnrbur. nher way undersand he errr s ask wha shuld happen he balance shee f he reremen age was unchanged bu lfe expecancy ncreased? In such a suan we wuld n expec any ncrease n asses bu we wuld expec an ncrease n lables. herefre fnancal balance shuld deerrae. In fac, he way n whch he balance shee s calculaed n Sweden, lables d ncrease because pensns are expeced be pad lnger; hwever, asses als ncrease because pay-u duran ncreases and herefre he D ncreases. hs s n he rgh resul (see ndrews () fr a fuller explanan and a prpsed slun hs errr). Usng he smple example abve, suppse ha lfe expecancy a reremen age ncreases by fur years frm 4 years, hen equan [] wuld be replaced by equan [3] belw. Pensn paymens: P (-.5) (P) where,,, 4 and all he P P [3] In equan [3] pay-u duran has ncreased frm, whch resuls n an ncrease n lables. urnver duran has als ncreased by w years. u wuld n make sense cnclude ha herefre he asses have ncreased. hs example llusraes he dangers f usng smple mdels. s dscussed n secn 3, he ppulan ras d n ndcae he rgh message wh respec he fnancal mpac f he ageng ppulan n healh and care css. s ned, ED prvdes a beer ndcar. s wll be shwn belw, alhugh he ppulan ras ndcae he rgh message wh respec he drecn f he fnancal mpac f ppulan ageng fr pensn css, hey d n ndcae he rgh magnude. In bh hese cases we are neresed n he rgh message, we are n ryng make a precse quanfcan. Hwever, he suan wh respec he fnancal balance n he Swedsh pensn sysem s dfferen. Here we are ryng calculae a relavely precse fnancal psn, because we are usng hs fnancal measure mdfy he pensns and accun balances whn he sysem. In a PYGO sysem, he balancng f he neres f dfferen generans s mpran. PYGO pensns wrk bes wh grwng ppulans r seady sae ppulans, because he generans f cnrburs are suffcenly large cmpared wh he generans f pensners ha he cs s manageable and dsrbued (relavely) farly acrss generans. Hwever, n ageng ppulans a PYGO sysem gves an advanage he pensners he dermen f cnrburs and fuure cnrburs. he cred f he Sweden, he NDC sysem replaced a defned benef sysem have a farer pensn prmse acrss generans. he Swedsh sysem peraes n he cnex f an ageng ppulan. I s als prmed as beng a far sysem (Seergren, 3); accrdngly, s very mpran denfy he errr ha resuls n unfarness and crrec. In a seady-sae suan where here was an ndefne ably cun n a subsequen generan f cnrburs cnrbue ensure he pensns f curren pensners, he mehd f calculang fnancal balance wrks. u n an ageng ppulan, where ferly raes are belw he replacemen rae, lfe expecancy s ncreasng fr hse abve FE, and he paerns f wrkfrce aachmen may change (fr example, by exendng he perd n educan), s essenal ha he mehd f calculang fnancal balance be far. I wuld be very easy cmpuanally change he mehd f calculang fnancal balance make far, as ndrews () bserves. Plcally, culd be exremely dffcul mplemen he change, as nally wuld have a sgnfcan fnancal cnsequence. I mgh als have plcal mplcans, as Sweden cnsders he curren sysem be a mulpary cmprmse. ndrews esmaed ha he asses n 6 mgh be versaed by ver 4 per cen (ndrews 8). Hwever, he D s a useful cncep. I gves anher rugh measure f hw we mgh beer see he fnancal mpac f pensns. lman f he OD and OS fr esmang fnancal mpac s ha hey are calculaed usng he number f peple n defned age grups n he calculan. If we were wegh he numbers n he aduls up age 65 grup and n he age 65 and ver grup by pay-n and pay-u duran respecvely, we wuld ge a beer undersandng f hw lng pensns may be expeced be pad and hw many years f cnrbuns (r axes) may be arbued payng hese pensns. We mgh defne urnver djused Old ge Dependency a (OD) as fllws: (Ppulan f FE and Older * Pay-u Duran)/ (dul Ppulan less han FE * Pay-n Duran); and defne urnver djused Old ge Suppr a as fllws: (dul Ppulan less han FE * Pay-n Duran)/ (Ppulan f FE and Older * Pay-u Duran).

55 WH CN WE LEN FOM POPULION IOS? 53 able 4: OS and OS Sweden, 5 and Year ged 64 ge 65 r lder OS Pay-n duran Pay-u duran OS Change n OS /year Change n OS /year 5,96,8,53, ,34,34,554, ,433,33,7, Surce: auhr s calculans based n OECD (4) and Swedsh Scal Insurance gency ( p.6, 7 p. 56, p.76). he reasn defne OD and OS n erms f FE, a he me f he deermnan, raher han age 65 s prvde ncreased accuracy when FE s her age 65. llusrae he dfference beween OS and OS, I have prepared able 4, based n nfrman wh respec Sweden. I have used age 65 nsead f FE, even hugh FE s gradually beng adjused upward, because he fgures n respec f FE were n avalable n he maeral cnsuled. he pay-n and pay-u durans d reflec FE. hs shuld nly have a mnr mpac snce FE s sll very clse age 65 and s used n bh ras beng cmpared. he nfrman n he able s srkng. Fr OS here was lle change beween and 5, and a 6% change beween and, ha s, OS mgh be nerpreed ndcae ha he fnancal burden f pensns had ncreased by 6% ver he year perd. Hwever, fr OS, here was a 6% change beween and 5, and a % change beween and, ha s, OS mgh be nerpreed ndcae ha he fnancal burden f pensns had ncreased % ver he -year perd. fgure f % ver a -year perd s very sgnfcan. Mrever, OS cnveys a much mre rapd ncrease n he fnancal burden han OS suggess. ecall he resuls presened n able. Fr Sweden OS was prjeced change by 5 per cen ver 4 years. 6% change beween and s n ncnssen wh hs resul, especally when we see he whle change ccurred beween 5 and. u f OS changes by % frm ne mus be very cncerned ha he change n OS ver 4 years wuld be much mre sgnfcan. Sweden has he lwes change n OS f all cunres shwn n able. One can nly speculae abu hw grea he change n OS mgh be fr her cunres. here s reasn be cncerned abu he fnancal burden arsng frm PYGO pensns due ppulan ageng, especally because cunres are akng nly very lmed and slwly mplemened measures ncrease FE. 6 CONCLUSIONS ND ECOMMENDIONS hs paper has dscussed he use f he OD and he OS as ndcars f he fuure fnancal burden due scal benef prgrams as a resul f ppulan ageng. In vew f nfrman abu mprvng healhy lvng ha s reducng mraly raes and cmpressng mrbdy, fnds ha here are reasns agree wh Spjker and MacInnes (3a, 3b) ha OD s n a gd ndcar f he fnancal burden fr healhcare and LC css. ED may be a beer l use fr such css. Hwever, wuld be msaken draw cnclusns regardng he fnancal burden due PYGO pensn css by usng ED. aher han OS r OD, hs paper suggess he use f OS r OD. hese ras are calculaed fr he example f Sweden fr whch pay-n and pay-u durans are avalable. hese ras ndcae he fnancal burden asscaed wh pensns s lkely be far greaer han wha s suggesed by OS r OD. In examnng he example f Sweden, he paper nes ha Sweden s ne f he few cunres be regularly changng s FE as lfe expecancy ncreases. Changng he FE n lne wh changes n lfe expecancy s ne f he bes mehds mgae he fnancal burden f pensns due ppulan ageng. N nly because f he fnancal effec, bu als because aumacally balances he burden beween pensners and cnrburs (ne ndvdual a a me). In he examnan f he Swedsh M s ned ha fnancal balance s calculaed ncrrecly, versang he fnancal psn. hs s unfarly advanageus pensners and unfarly dsadvanageus fuure cnrburs. Hwever, he paper fnds he cnceps f D, pay-n duran and pay-u duran, used by he Swedsh sysem calculae asse values, be useful. Unfrunaely her nanal pensn sysems d n publsh nfrman regardng pay-n and pay-u durans. Such nfrman wuld be helpful n undersandng he penal fnancal burden f PYGO pensns due ppulan ageng.

56 54 USLIN JOUNL OF CUIL PCICE 4 VOLUME s a resul f hs analyss, here are fur mpran recmmendans:. he Swedsh pensn sysem shuld crrec s mehd f calculang asses fr he deermnan f fnancal balance use pay-n duran raher han D.. OS and OD shuld n be used fr he esman f he fnancal burden due ppulan ageng. Fr healhcare and LC, ED mgh be used, and fr pensns OS r OD mgh be used. 3. perm he esman f he fnancal burden f pensns due ppulan ageng, nanal pensn auhres (r anher bdy such as he OECD) shuld calculae and publsh pay-n and pay-u duran. 4. prvde a farer dsrbun f he burden f pensn css due ppulan ageng, cunres shuld ake acn rase he FE and cnnue rase he FE f lfe expecancy ncreases and he dsrbun f he perd f pensn recep pensn cnrbun changes. blgraphy ndrews, D. (8). revew and analyss f he susanably and equy f scal secury adjusmen mechansms. hp:// hdl.handle.ne//4. (). Why Sweden s nnal DC pensn sysem needs a calculan crrecn, man Inernanal Jurnal f Pensn Managemen, 5(): arn, E., & xelssn,. (). nnual nanal repr pensns, healh care and lng-erm care Sweden. Eurpean Cmmssn DG Emplymen, Scal ffars and Inclusn. Lee,. (994). he frmal demgraphy f ppulan agng, ransfers, and he ecnmc lfe cycle. In L. Marn & S. Presn (eds). he demgraphy f agng, Nanal cademy Press, Washngn, DC, (6). Dscussn f he rae f reurn f pay-as-yug pensn sysems: a mre exac cnsumpn-lan mdel f neres. In. Hlzmann & E. Palmer (eds). Pensn refrm: ssues and prspecs fr nn-fnancal defned cnrbun (NDC) schemes. he Wrld ank, Washngn, DC, OECD. (3). Pensns a a glance 3: OECD and G ndcars. OECD Publshng. hp:// pensns/publc-pensns/oecdpensnsglance3. pdf. (4). Sascs. hp:// Ppulan eference ureau. (4) Wrld Ppulan Daa Shee. hp:// Daashees/4/4-wrld-ppulan-daa-shee/daashee.aspx Seergren, O. (). he aumac balance mechansm f he Swedsh pensn sysem. he Nanal Insurance ard. Wrkng Papers n Scal Insurance :.. (3). Fnancal and ner-generanal balance? n nrducn hw he new Swedsh pensn sysem manages cnflcng ambns. Scandnavan Insurance Quarerly, NF : (). Impac f he fnancal and ecnmc crss n he Swedsh pensn sysem. Inernanal Scal Secury sscan. hp:// Impac-f-he-fnancal-and-ecnmc-crss-n-he- Swedsh-pensn-sysem/(language)/eng-G Seergren, O., & Mkula,.D. (6). he rae f reurn f payas-yu-g pensn sysems: a mre exac cnsumpnlan mdel f neres. In. Hlzmann & E. Palmer (eds), Pensn efrm: Issues and Prspecs fr Nn-Fnancal Defned Cnrbun (NDC) Schemes, he Wrld ank, Washngn, DC, 7-4. Scey f cuares. (4). Lvng Sympsum V Mngraph. Frhcmng. Spjker, J., & MacInnes, J. (3a). Ppulan ageng In Scland: me fr a re-hnk? Scsh ffars, n. 85, [53-74].. (3b). Ppulan ageng: he mebmb ha sn? MJ 3;347:f6598 d:.36/bmj.f6598 Swedsh Scal Insurance gency. (). Orange epr: annual repr f he Swedsh Sysem. Sckhlm, Sweden.. (7). Orange epr: annual repr f he Swedsh Sysem 6. Sckhlm, Sweden.. (). Orange epr: annual repr f he Swedsh Sysem. Sckhlm, Sweden. Dr Duglas ndrews FCI, FS, FI [email protected] Dug ndrews s djunc Prfessr a he Unversy f Waerl n Canada. Hs research s fcused n nvesmens, rsk managemen, fnancal ecnmcs and ageng, and her mplcans fr he managemen f scal suppr sysems, such as pensns, healh care and lng-erm care glbally.

57 55 Susanably f pensn sysems n Eurpe he demgraphc challenge CHIS DYKIN SC Chrs Daykn Fscal susanably f pensns s a serus ssue n Eurpe because f he ageng f he ppulan bu here s als cncern ha refrmed pensns may n be adequae. cuares have always been seen as majr players n emplyer-spnsred pensn schemes and nsured pensns bu have fen n been very vsble n cmmenng n publc plcy ssues cncernng he pensn sysem as a whle. hs arcle nrduces he wrk beng dne by he cuaral sscan f Eurpe rase he prfle f acuares wh Eurpean nsuns n he brader plcy ssues. JP 4; : 55-6 KEYWODS ageng ppulan, susanably, adequacy, publc neres, acuares

58 56 USLIN JOUNL OF CUIL PCICE 4 VOLUME EUOPE SLOW O DDESS HE CHLLENGE OF N GEING POPULION Ms cunres n he Eurpean Unn (EU) are experencng serus challenges her pensn sysems, arsng a sgnfcan exen frm he ageng f he ppulan. Ppulans are ageng because f relavely lw brh raes and rapdly ncreasng expecans f lfe, parcularly a lder ages, n sme cases exacerbaed by ne emgran a wrkng ages. In spe f he huge mprance f hs ssue fr nanal ecnmes, and ndeed fr he EU as a whle, fr many years he EU k n acve rle n shapng scal secury plcy r even n encuragng Member Saes address he emergng challenges. hs was because, frm a echncal perspecve, he EU nsuns d n have cmpeence n relan scal secury (pllar ), whch has frm he sar been regarded as an ssue reserved nanal gvernmens. he ne area where wrk was carred u was develp regulans faclae he accumulan f scal secury enlemens ver a wrkng career spen n several dfferen Member Saes f he EU. hs s n effec a mullaeral scal secury agreemen, whereby an ndvdual can ge enlemen benefs based n he aggregae perd f me spen cnrbung dfferen nanal scal secury sysems. enefs wll hen be payable frm each, even f he perd f servce n a parcular cunry wuld n f s wn rgh have been lng enugh secure enlemen benef, prvded he al perd s enugh fr qualfyng. hs was seen n as nervenn n maers f scal secury plcy, bu as a cnsequence f he EU respnsbly fr faclang he free mvemen f wrkers hrughu he EU. he EU nsuns dd, hwever, have cmpeence n respec f ccupanal pensn schemes (pllar ), nwhsandng ha he frm f hese vares grealy frm cunry cunry. Drecve was agreed n 3 relang Insuns f eremen Prvsn. I deal wh maers such as separan f emplyer and pensn fund, gvernance f pensn funds, accuns and aud, nfrman requremens and pwers f regulary auhres. Hwever, dd n cver pay-as-yu-g (réparn) pllar schemes (such as exs n France), nr dd cver bk reserve pensn sysems (such as prevaled n Germany a ha me). Oher aemps a legslan fr pllar pensns cvered ssues such as prably, he am beng faclae free mvemen f wrkers beween EU Member Saes, ne f he p bjecves f he EU reaes. Hwever, he prably prpsals dd n prgress, because sme Member Saes were ppsed he dea f nrducng shrer vesng perds, whch was an negral par f he prpsal be able recgnse accrued rghs fr shr perds f servce and be able ransfer he crrespndng pensn accumulan frm ne cunry anher. DEVELOPING MOE POCIVE PPOCH brader sraegy began emerge when he ECOFIN Cuncl (he Cuncl f Fnance Mnsers f he EU Member Saes) requesed he Ecnmc Plcy Cmmee f he Cuncl prepare a prgress repr by Nvember 3 prvdng an vervew f analyses ha had been carred u a EU level n he mpac f ageng ppulans n publc fnances. hs repr, publshed n Ocber 3, 3 was examne he mers and lmans f he apprach used assess he susanably f publc fnances n he bass f he sably and cnvergence prgrammes. he repr became knwn as he 3 geng epr and was fllwed by smlar reprs n 6, 9 and, 4 each becmng mre ambus n erms f he maeral cvered (he man vlume f he repr runs 47 pages). hs began a prcess f ncreasng nvlvemen f he EU n he ssues surrundng fscal susanably f pensn sysems, whch fr ms cunres predmnanly means frs pllar scal secury, bu als cvers publc secr ccupanal pensn schemes ha are drecly fnanced, n whle r n par, by gvernmen cnrbuns. In July he Eurpean Cmmssn (he execuve admnsran f he EU) ssued a Green Paper n pensn sysems, 5 whch sared a debae abu wha sraeges and plces he EU shuld adp n rder address he challenges f he ageng ppulan. I deal wh such pcs as addressng pensn adequacy, securng susanably, achevng a susanable balance beween wrk and reremen, mbly f wrkers and nslvency f emplyers. In radnally n he leraure pensn sysems have been descrbed n erms f pllar (scal secury), pllar (emplyer-spnsred pensn funds) and pllar 3 (ndvdual pensn savngs). Drecve s a frm f Eurpean legslan ha s bndng n Member Saes and requres each nrduce legslan n her wn jursdcn mplemen he prvsns f he Drecve. 3 Ecnmc Plcy Cmmee (3). he mpac f ageng ppulans n publc fnances: vervew f analyss carred u a EU level and prpsals fr a fuure wrk prgramme. EPC/ECFIN/435/3 fnal 4 Eurpean Cmmssn (). he ageng repr. Ecnmc and budgeary prjecns fr he 7 EU Member Saes (-6). Eurpean Ecnmy / 5 Eurpean Cmmssn (). Green Paper wards adequae susanable and safe Eurpean pensn sysems. SEC () 83.

59 SUSINILIY OF PENSION SYSEMS IN EUOPE HE DEMOGPHIC CHLLENGE 57 her wrds gave a brad vervew f many key pensn plcy ssues and dscussed where he EU mgh begn ake acn n hs agenda. he Eurpean Parlamen began ake an neres n he fscal susanably f pensn sysems and publshed a subsanal repr n Ocber. 6 Meanwhle he Eurpean Cmmssn was wrkng n a Whe Paper, whch was publshed n February, 7 seng u fuure plcy. In he Eurpean Cmmssn publshed n nly he geng epr bu als he dequacy epr. In prncple wuld have made sense fr hese be cmbned n a sngle dcumen, snce susanably and adequacy really need be cnsdered geher. Hwever, he realplk s ha he geng epr s develped by he DG ECFn 8 f he Cmmssn and supprs he naves f he Ecnmc Plcy Cmmee f he Cuncl, essenally drven by Deparmens f Fnance f Member Sae gvernmens, whereas he ssues f adequacy are ms n he mnd f DG Emplymen n suppr f he Scal Plcy Cmmee, whch has represenan frm he labur and welfare deparmens f Member Sae gvernmens. here has been alk f mre crdnan beween hese w naves fr he 5 reprs, bu a he mmen seems unlkely ha hey wll be cmbned n a sngle publcan. Member Saes f he EU have cmmed achevng sme specfc arges ver he decade frm under a prgramme knwn as Eurpe, whch s he EU s grwh sraegy fr he cmng decade. he Presden f he Eurpean Cmmssn, Jsé Manuel arrs, referred hs n he fllwng wrds: In a changng wrld, we wan he EU becme a smar, susanable and nclusve ecnmy. hese hree muually renfrcng prres shuld help he EU and he Member Saes delver hgh levels f emplymen, prducvy and scal chesn. Cncreely, he Unn has se fve ambus bjecves n emplymen, nnvan, educan, scal nclusn and clmae/energy be reached by. Each Member Sae has adped s wn nanal arges n each f hese areas. Cncree acns a EU and nanal levels underpn he sraegy. In rder pursue hs prgramme, he Eurpean Cmmssn has se up a yearly cycle f ecnmc plcy crdnan called he Eurpean Semeser. he Cmmssn underakes a dealed analyss each year f Member Saes prgrammes f ecnmc and srucural refrms, and prvdes hem wh recmmendans fr he nex 8 mnhs. he sgnfcance f hs fr scal secury and pensn plcy s ha he EU s nw acvely revewng n an annual bass he acns and plces f Member Saes make her pensn sysems mre fscally susanable, and als makng specfc plcy recmmendans. I s beynd he scpe f hs shr arcle dscuss n mre deal he resuls f hs prcess and he naves ha are beng pu n place by Member Saes, r he refrms ha are beng urged n Member Saes by he Eurpean Cmmssn as par f he Eurpean Semeser Prcess. Suffce say ha s nw very clear ha he EU des have a rle n mnrng he susanably f pensn sysems and ha hese naves are f he ums mprance Member Saes. 3 HE OLE OF HE EUOPEN CUIL POFESSION here are mre han, qualfed acuares n he EU, rgansed fr he ms par n nanal acuaral asscans (wh he excepn f he Insue and Faculy f cuares, whch has members n ver cunres, ncludng many Eurpean cunres). In 978, fllwng alms hree years f preparan, he frs meeng f he Grupe Cnsulaf cuarel Eurpéen (Eurpean cuaral Cnsulave Grup) was held n Pars n May. he nenn f frmng he Grupe Cnsulaf was gve he acuaral asscans f he EU a cmmn vce n russels, he hear f he EU. ha me here were nne Member Saes: elgum, Denmark, France, Germany, Ireland, Ialy, Luxemburg, Neherlands and he Uned Kngdm, wh Denmark, Ireland and he UK havng jned n 973, and he hers all beng fundng members (effecvely frm 95). I was n he nenn ha he Grupe Cnsulaf shuld ake ver any f he man funcns f an acuaral asscan frm he ndvdual member asscans. Indvdual acuares wuld reman accunable her wn asscan and wuld n hemselves be members f he Grupe, whch was be n effec an asscan f asscans. Each asscan wuld send delegaes he Grupe meengs, where he am wuld be acheve cnsensus n all maers n whch he Grupe wuld pu u an pnn r publc saemen. Inally he prmary nenn was fr he Grupe prvde a mechansm fr acuaral vews 6 ECON (). Pensn sysems n he EU: cnngen lables and asses n he publc and prvae secr. IP//ECON/S/-6 7 Eurpean Cmmssn (). Whe Paper. n agenda fr adequae, safe and susanable pensns. SWD() 7 fnal 8 DG sands fr Drecrae General and represens he equvalen a EU level f a gvernmen deparmen.

60 58 USLIN JOUNL OF CUIL PCICE 4 VOLUME be ransmed he Eurpean Cmmssn, he cvl servce f Eurpe, and her EU enes. Over he years he Grupe Cnsulaf became esablshed and knwn, a leas ceran pars f he Eurpean Cmmssn, and her Eurpean-level bdes, such as Insurance Eurpe, whch represens nanal nsurance asscans and Pensns Eurpe, whch represens asscans f pensn funds. I has had a parcularly srng vce n he develpmen f nsurance regulan a he EU level and n he frmulan f EU legslan n nsurance busness and pensn funds. In 99 he Grupe adped a cmmn cde f cnduc, whch all member asscans were requred ncrprae n her wn cde f cnduc, r ensure ha her wn cde cvered all he pns n he Grupe cde. ls n 99 he Grupe agreed a cmmn cre syllabus fr he educan f fully qualfed acuares. Whls hs s sll evlvng, he nfluence f he Grupe n hs respec has led a sgnfcan cnvergence f he cnen and level f acuaral educan. hs nave was n par drven by he need respnd he EU Drecve n muual recgnn f hgher educan dplmas, whch requres Member Saes n dscrmnae agans ndvduals wh have aaned her qualfcans n her Member Saes. Frm a prfessnal perspecve hs legal requremen was seen as weak, and he Grupe muual recgnn agreemen, accmpaned by he cmmn cre syllabus fr he educan f acuares and he agreed cre cde f cnduc, encuraged acuares wrkng acrss brders jn he asscan n any cunry where hey are pracsng as an acuary, and cmply wh lcal prfessnal regulan and sandards. he Grupe has fr many years had srng relanshps wh DG Mark (he Drecrae General fr Inernal Marke and Servces) and has prvded advce and npu n many maers cncernng he regulan f nsurance cmpanes and ccupanal pensn funds. Mre recenly a clse relanshp has been develped wh EIOP (Eurpean Insurance and Occupanal Pensns uhry). Hwever, he Grupe had n been acve a all n addressng he bgger pcure ssues f nanal pensn plcy, scal secury and ppulan ageng, parly because hese were n ssues ha were seen as beng whn he cmpeence f he Eurpean Cmmssn, bu als because relavely few acuares wrk drecly n he publc plcy area, beng largely emplyed n prvae secr pensn ssues. 4 GEE PULIC POLICY ENGGEMEN Hwever, wh he ncreasng mprance f fscal susanably and he nervenn f he Eurpean Cmmssn and he Eurpean Parlamen n he ssues f ageng and pensn refrm, he leadershp f he Grupe decded ha he me had cme see wheher he acuaral prfessn culd develp a vce n hese pcs, where acuares clearly had he cmpeence speak u, even f nly a mnry f acuares were drecly emplyed n publc plcy rles. Havng spen many years as he Gvernmen cuary f he UK, I was asked char a Scal Secury Sub-cmmee f he Pensns Cmmee f he Grupe, whch was se up n July wh erms f reference f whch he fllwng are perhaps he ms mpran:. mnr annuncemens and publcans relang he maers lsed abve, especally frm he Eurpean Cmmssn, he Eurpean Parlamen and he Cuncl. denfy pcs n whch mgh be praccal and useful fr he Grupe Cnsulaf develp a dscussn paper r psn paper and/r ssue a press release 3. carry u research drawng n readly avalable maerals, such as prjecns f he ppulan and f scal expendure (fundamenal research nvlvng develpmen f mdels f ur wn s unlkely be feasble) 4. presen hrugh he Grupe Cnsulaf he vews and advce f he acuaral prfessn n he EU n maers f cncern he prfessn n demgraphy, ageng, scal secury and scal precn plcy he EU Insuns, parcularly he Eurpean Cmmssn and he Eurpean Parlamen, and, where apprprae, her rgansans 5. rganse regular meengs wh represenaves f DG Emplymen, Scal ffars and Equal Opprunes dscuss maers f muual neres 6. seek pprunes bref Members f he Eurpean Parlamen (MEPs) n wrk carred u by he Grupe Cnsulaf and n parcular n any publshed psn papers and press releases. 4. Susanably f pensn sysems he acves f he sub-cmmee were launched wh he publcan f he repr Susanably f pensn sysems n Eurpe he demgraphc challenge 9 9 Grupe Cnsulaf cuarel Eurpéen (). Susanably f pensn sysems n Eurpe he demgraphc challenge. hp:// dcumens/susanably_pensn_sysem_%fnal_7%76_web.pdf

61 SUSINILIY OF PENSION SYSEMS IN EUOPE HE DEMOGPHIC CHLLENGE 59 n July. s he sub-cmmee had nly jus been se up, hs was prmarly based n a paper ha I had develped prevusly, whch was revewed by members f he sub-cmmee and he Grupe s man Pensns Cmmee, whch he sub-cmmee repred. he repr creaed a grea deal f neres, bh n he Eurpean Cmmssn (especally DG Emplymen) and amng MEPs. he Grupe had recenly appned a full-me depuy chef execuve wh specal respnsbly fr publc affars, Pa Skaerbak, and, wrkng geher wh he charman f he Pensns Cmmee, Falc Valkenburg, we se up a large number f meengs wh MEPs, wh dfferen pars f he Eurpean Cmmssn and wh varus Eurpean lbby grups, ncludng Insurance Eurpe, Pensns Eurpe, EIP (Eurpean sscan f Parare Insuns), MICE (sscan f Muual Insurers and Insurance Cperaves n Eurpe). 4. dequacy f pensn sysems hese meengs, and he wder prmulgan f he repr, had he effec f esablshng he credenals f he Grupe as an auhrave cmmenar n hese ssues. Snce hen we have red buld n hs nal mpeus and have sared develp a number f wrk-sreams. Clsely relaed he susanably ssue s he quesn f adequacy f enlemen nheren n pensn sysems. he sub-cmmee has esablshed a ask Frce n dequacy, whch has recenly sared wrk. he nenn s wrk cllabravely wh he Scal Plcy Cmmee f he Eurpean Cuncl (whch has represenaves f nanal gvernmens) and DG Emplymen n acklng sme specfc pcs ha are par f he very brad penal agenda f adequacy ssues. Several members f he ask frce als wear dfferen has as represenaves f her cunres n relevan EU Cmmees and sub-cmmees. 4.3 rackng servces nher small ask frce was esablshed wrk n rackng servces. hese are sysems develped n dfferen cunres enable ndvduals fnd u her enlemen pensns frm a varey f dfferen surces, ncludng scal secury, ccupanal pensns and smemes als persnal pensns. he frs repr f hs ask frce fcused n rackng servces n Denmark, Fnland, Sweden and he Neherlands, where we knew here were wellesablshed n-lne rackng servces already n place. hs repr was publshed n Ocber 3 and was grealy apprecaed by DG Emplymen, whch has a majr prjec underway lk n rackng servces and pn he way wards fuure Eurpean-wde rackng servces. he char f he ask frce, Jeren van den sch, receved several nvans speak a hgh-prfle Eurpean pensn evens, and he has als develped a srng wrkng relanshp wh he cnsrum, whch he EU s fundng prduce a majr repr n rackng servces. Fllwng he success f he frs repr, he ask frce has nw regruped wh membershp f acuares frm a number f her EU Member Saes and has begun wrk n a secnd repr, whch wll lk a wha has been dne and wha are he asprans and he bsacles regardng he develpmen f rackng servces n hse cunres. 4.4 Prjecn mehdlgy nher ask frce was esablshed lk n deal a he mehdlgy ha had been used fr he cash-flw prjecns f pensn expendure, whch had been publshed n he geng epr. We wuld regard makng such prjecns as acuaral wrk, bu n pracce he prjecns are carred u by acuares n nly a mnry f Member Saes. ls, because f he desre f he Ecnmc Plcy Cmmee f he Eurpean Cuncl (and ECFn, he relevan DG f he Eurpean Cmmssn ha wrks n he prjecns) manan cnssency acrss he 8 Member Saes, he prjecns are requred be carred u usng sylsed demgraphc assumpns develped by Eursa, and many aspecs f he prjecns are specfed by DG ECFn. hs reduces he scpe fr Member Saes ake n accun legmae dfferences beween cunres and als smemes makes he prjecns raher arfcal fr example, when hey gnre bes esmaes f he mpac f planned refrms. he ask frce prepared a shr repr, whch n hs case was n made publc bu was shared wh ffcals a DG ECFn and wh members f he geng Wrkng Pary. he Grupe nave was n welcmed unreservedly, as here was suspcn as ur mves fr geng nvlved, acuares beng perceved as represenng prvae secr ndusry neress, and ms her such Eurpean rgansans beng esablshed wh an explc lbbyng rem. We als engaged drecly wh he sascans a Eursa n Luxemburg n rder undersand beer he way n whch hey develped he assumpns fr he demgraphc prjecns ha Member Saes were requred use fr he prjecns exercse. lhugh a realsc assessmen wuld be ha ur mpac s far has been lmed, sme changes are beng nrduced ha we feel have arsen, a leas n par, frm ur nervenns, bh n he apprach he demgraphc prjecns and n he prjecns f pensn expendure. new phase f wrk s currenly under way fr he ask frce dsl frm he new

62 6 USLIN JOUNL OF CUIL PCICE 4 VOLUME ISP mdel acuaral sandard, prmulgaed by he Inernanal cuaral sscan, sme pners ways n whch he reprng f he EU prjecn exercse culd be brugh mre n lne wh bes nernanal acuaral pracce. 4.5 Cnsumer precn fr ndvdual pensns furher area f acvy has been respnd a cnsulan paper frm anher par f he Eurpean Cmmssn, DG Sanc, whch deals wh Cnsumer ffars and Healh. hs cncerned cnsumer precn n respec f pllar 3 pensns (persnal pensns sld whu he nvlvemen f an emplyer). Whls hs mgh mre naurally have been handled by he Pensns Cmmee, r by he recenly esablshed Cnsumer ffars ask Frce, n pracce he Scal Secury Sub-cmmee was ready and avalable ake up he challenge, fllwng a meeng whch had been held esablsh relans wh DG Sanc. We als respnded a parallel cnsulan by EIOP n he regulan f pllar 3 pensns. 4.6 Imprved brandng fr he acuaral prfessn Sme f he feedback we baned frm meengs arsng u f hese naves ncluded he relave bscury f ur name Grupe Cnsulaf cuarel Eurpéen (whch was shrhand fr he full name Grupe Cnsulaf cuarel Eurpéen des Pays des Cmmunaués Eurpéennes). hs name may have served s purpse n he early years f he grup, where respnded plcal sensvy whn he member asscans abu he mprance f subsdary and he need avd any mplcan ha a new asscan was beng frmed ha wuld ake ver frm nanal asscans r dmnsh her rle. Hwever, wh 35 years f experence f perang as he Grupe Cnsulaf, and n he lgh f he expansn f he Grupe s publc affars acves n new areas, was decded by he Grupe a s General ssembly n Dubln n Sepember 3 change he name he cuaral sscan f Eurpe. Nhng has changed n respec f he prncple f subsdary, bu s beleved ha he new name (and he new nals E, n bh Englsh and French) wll serve us beer n publc affars represenan, snce gves a clearer and mre ransparen brandng fr Eurpean acuares. 4.7 Servng he publc neres I s sll early days n he develpmen f he brader publc affars rle f he E bu we are encuraged by he mpac f he seps aken s far, and we lk frward cnnung develp and prmulgae maeral ha wll pen up drs fr us prme he publc neres rle f he acuaral prfessn. In smlar erms he vsn f he I, he E has adped he fllwng as a par f s mssn saemen: enhance he rle f he E, n behalf f he acuaral prfessn n Eurpe, as an bjecve, ndependen, prfessnal, leadng advser, cnrbur and spkespersn Eurpean nsuns and sakehlders n all maers f acuaral relevance, wdely recgnsed and respeced n hs rle, n pursu f he publc neres. he wrk f he Scal Secury Sub-cmmee s seekng acheve hs mssn n he val area f scal secury and pensn plcy. 5 CONCLUSIONS hs shr paper llusraes he challenges facng he acuaral prfessn n achevng relevance n publc affars nervenns n he cmplex geplcal envrnmen f he EU. Whls he gvernmenal agences wh whch he E has engaged cmmand far mre exensve resurces han ur srugglng vluneer effrs, argeed and nsghful cnrbuns frm he acuaral prfessn whch seek educae, nfrm and rase relevan ssues n pcs whch acuares undersand well have been hghly apprecaed and welcmed by bh ffcals and eleced members and have sgnfcanly rased he prfle f he prfessn. lhugh undubedly cmplcang he arculan f a cmmn acuaral vew, he nvlvemen f acuares frm mre han a dzen cunres has added credbly he E as a ruly Eurpean cnrbur n key ssues. he usralan envrnmen s bvusly very dfferen, and he cuares Insue has fcus n nly ne gvernmen s superannuan plcy, bu s neverheless mpran fr he prfessn speak u and make nfrmed cnrbuns n majr ssues f Inernanal cuaral sscan (3). Inernanal Sandard f cuaral Pracce (ISP) Fnancal nalyss f Scal Secury Prgrams. hp:// he erm subsdary refers he gvernance prncple f accepng ha member asscans have prmary respnsbly n her areas f cmpeence and ha he nernanal bdy shuld nly ac n relan maers a he nernanal level where s dffcul r less effcen fr he member asscans ac drecly. he I als peraes a smlar prncple f subsdary wh respec s member asscans.

63 SUSINILIY OF PENSION SYSEMS IN EUOPE HE DEMOGPHIC CHLLENGE 6 publc affars, especally n he adequacy, susanably and cherence f plces affecng he ncme f lder czens. Chrs Daykn C, Hn DSc, M, FI, FF, FS [email protected] Chrs Daykn was he UK Gvernmen cuary frm He s nw an ndependen cnsulan and has several appnmens, ncludng as a Drecr f NOW: Pensns and rusee f several pensn plans. He s a pas presden f he Insue f cuares and f he Inernanal cuaral sscan, pas charman f he Grupe Cnsulaf cuarel Eurpéen and currenly charman f he Scal Secury Sub-cmmee f he cuaral sscan f Eurpe.

64 6 USLIN JOUNL OF CUIL PCICE 4 VOLUME

65 63 esearch hghlghs frm he Inernanal Cngress f cuares 4 IDGE OWNE brad range f research relevan acuares n all areas f pracce was presened a IC4. he fllwng are jus a few hghlghs. he full prgram, presenans, papers and recrdngs are avalable a hp:// rdge rwne DEPENDENCY SOEING EMINDE In hs plenary sessn, Paul Embrechs f EH Zurch spke elquenly n he pc f uncerany. He quckly mved n farly specfc errry, addressng sme f hs wrk n uncerany n dependence srucures (whch he called mdel uncerany) and drec cnsequences fr capal mdellng n parcular. hs was elabraed n n a parallel sessn, where he dscussed he relave mers f value a rsk (Va) and expeced shrfall (ES) as measures f exreme adverse ucmes and demnsraed he enrmus range f he resulan capal requred frm he bes he wrs dependence srucure. he clear message: he wrs dependency ucme fr he Va r ES f an aggregaed prfl f rsks s subsanally mre han he sum f he ndvdual measures. he sessns and he accmpanyng paper are a farly accessble remnder f he pfalls f an ncmplee undersandng f dependence srucures. INDIVIDUL EQUIY ND COLLECIVE ISK SHING WHEE DOES INSUNCE SI? JP 4; : Predcve mdelng much f a gd hng?, presened n he frm f a debae beween Prfessr b rwn, curren Presden f he Inernanal cuaral sscan, and sevel Msley, Prncpal & Cnsulng cuary, Pnnacle cuaral esurces, Inc, was a hghly eneranng dscussn n a key ssue fr bh he nsurance ndusry, and acuaral pracce and prfessnalsm. he sessn rased mpran quesns abu he exen whch he ndvdualsan f rsk rang ha may be enabled by predcve mdellng culd fundamenally undermne he cllecve, rsk-plng, prncple f nsurance.

66 64 USLIN JOUNL OF CUIL PCICE 4 VOLUME MOLIY MODELLING In hs very acve feld f acuaral research, a brad range f presenans were made, demnsrang he dversy f vews and appraches beng aken mdel hs key rsk. Prfessr a he Schl f Publc Healh, Unversy f Illns a Chcag, S. Jay Olshanky s plenary sessn cvered hs research n pssble lms he exensn f lfe expecancy and presened he lngevy dvdend cncep, whch advcaes a fcus n slwng he ageng prcess by amng exend healhy lfe expecancy. Fllwng hs sessn were a mulude f parallel sessns dscussng dfferen aspecs f mraly prjecns and lngevy rsk (e.g. sessns 3, 37, 43), ncludng analyss f pas paerns and varans n mraly by age, gender, chr, perd, cause f deah, and gegraphc and sc-ecnmc facrs. New prjeced (r generanal) mraly ables frm bh he Scey f cuares and he Canadan Insue f cuares were presened. hese are valuable references ha may be applcable he usralan suan n he absence f equvalen lcal daa surces. rdge rwne Ec, FI, FI, CE [email protected] rdge rwne s a Senr Lecurer n cuaral Sudes a he usralan Nanal Unversy n Canberra. Prevusly she was Glbal Lfe Chef Prcng cuary a Parner ensurance.

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