How Much Redistribution within Pension Systems? Scope and Implications for Adequacy

Annual conference

25 June 2004

Real Collegio Carlo Alberto

As debate and empirical work on pension systems progress, the idea that reforms should aim at a clearer separation between insurance and redistribution seems to gain force. Almost everywhere reforms go in the direction of more “bismarckian” systems, somehow adopting actuarial fairness as the basic principle for calculating benefits, which means taking account of lifetime payroll taxes and, possibly, of expected longevity. The change implies uniformity of rules among income classes, cohorts and gender, instead of the maze of schemes characterising many PAYG systems in Europe, with various privileges accorded to more influential categories; it also implies that, possibly with the exception of a minimum pension provision, the distribution of pensions will mirror that of labour income.

Is this a good direction of reform? Possibly yes, since traditional schemes redistribute very heavily but also very unjustly, with defined benefit rules used to favour steep as opposed to flat earnings careers, workers in “rich” as opposed to workers in “poor” industries, the relatively young leavers as opposed to the older ones, the self-employed as opposed to the employees, public as opposed to private employees. In all these comparisons, redistribution is very often not from rich to poor.

However, since a fraction of the population is normally left behind, and some groups are more at risk than others, one should perhaps ask whether we are not “throwing out the baby together with the bath water” and, more specifically whether redistributive features are not still required for the system to achieve adequate pension levels for all, and particularly for the less fortunate members of society.

These are the questions motivating the 2004 CeRP conference.