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Chapter 4: Pensions and Children

Author

Listed:
  • Lars Calmfors
  • Giancarlo Corsetti
  • Seppo Honkapohja
  • John Kay
  • Willi Leibfritz
  • Gilles Saint-Paul
  • Hans-Werner Sinn
  • Xavier Vives

Abstract

This chapter is a primer of key economic issues in the reform of pension systems in the EU. The chapter begins with an overview on the strains on European pension systems that loom ahead as a result of the ageing populations in the EU countries. The old-age dependency ratios are forecasted to grow to very high levels, which has major fiscal implications, as the pension system is, to a large extent, a part of the public sector. The chapter discusses principles for reforms of the pension systems that are needed to fix the emerging budget problems and to improve efficiency. The strain can be relieved to some extent by increasing the retirement age and lowering pension benefits, as well as by adopting more general structural policies that enhance economic growth. Our key recommendation is to add a funded pillar to the existing pay-as-you-go systems, to mitigate the missing human capital (due to ageing) by adding incentives for real capital formation. Moreover, the pay-as-you-go pension could be differentiated according to the number of children, provided individually tailored savings plans for the funded pillar are designed to ensure a sufficient level of overall pensions for the childless.

Suggested Citation

  • Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & John Kay & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2005. "Chapter 4: Pensions and Children," EEAG Report on the European Economy, CESifo, vol. 0, pages 69-101, March.
    • Handle: RePEc:ces:eeagre:v::y:2005:i::p:69-101
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    References listed on IDEAS

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    1. Heikki Oksanen, 2004. "Pension Reforms: An Illustrated Basic Analysis," CESifo Economic Studies, CESifo Group, vol. 50(3), pages 569-625.
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    3. Robert Fenge & Martin Werding, 2003. "Ageing and Fiscal Imbalances Across Generations: Concepts of Measurement," CESifo Working Paper Series 842, CESifo.
    4. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," NBER Working Papers 8655, National Bureau of Economic Research, Inc.
    5. Hans-Werner Sinn, 2005. "Europe’s Demographic Deficit A Plea For A Child Pension System," De Economist, Springer, vol. 153(1), pages 1-45, December.
    6. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    7. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," NBER Working Papers 7592, National Bureau of Economic Research, Inc.
    8. Heikki Oksanen, 2003. "Population ageing and public finance targets," European Economy - Economic Papers 2008 - 2015 196, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Robert Fenge & Martin Werding, 2004. "Ageing and the tax implied in public pension schemes: simulations for selected OECD countries," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 159-200, June.
    10. Bernard Casey & Howard Oxley & Edward Whitehouse & Pablo Antolín & Romain Duval & Willi Leibfritz, 2003. "Policies for an Ageing Society: Recent Measures and Areas for Further Reform," OECD Economics Department Working Papers 369, OECD Publishing.
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