Actuarial Association of Europe, Social Security Subcommittee, Adequacy Task Force

Principles

2012 Adequacy Report - remarks from an actuarial perspective

From pension adequacy to life-long security

From fragile solidarity to intergenerational fairness

From actuarial to societal fairness

From incentives/disincentives to a robust labour market

Measurement tools (indices)

Working frame and collaboration

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Sound Pension Systems’ Principles

Safety/ Poverty alleviation (minimum pension/income)

Equity (actuarial, intergenerational)

Consumption Smoothness (intergenerational)

Transparency (policy valuation indicators, communication

to the public)

Foresight (investment)

Solidarity (from stronger to vulnerable groups/society

fairness)

Sustainability (growth, valuation and financial reporting)

Dignity (old age)

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AAoE aim: Among other adequacy issues, also to shed light on those not yet raised by the ISG

Issues, Comments on the Adequacy of Pensions Report 2012

How much longer will people live?

Who will bear the new imbalances of the system?

Are incentives and disincentives for pensions’ taking up properly

balanced?

Do they lead to improved adequacy and, if so by how much?

What are the implications of reforms for different cohorts of participants?

What are the implications of reforms for workers according to their

occupations (manual/white/blue collar)?

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AAoE aim: Among other adequacy issues, also to shed light on those not yet raised by the ISG

What are the implications of reforms for various workers according

to their employment and unemployment ?

Should pension benefits reflect the differential inflation rate

experienced by the elderly ?

What about representation?

To what extent should the concept of healthy life expectancy be

reflected in policy-making ?

What was the role of investment risk in undermining adequacy in

2nd and 3rd pillar schemes ?

Does transparency play a role concerning adequacy?

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From fragile solidarity to intergenerational fairness Contributions and benefits should be properly balanced within

generations/cohorts

Poverty in old age should be overcome, even if gradually

All living generations should share the cost of imbalances

Living standards of workers and pensioners should be

balanced (The transition from working life to retiree life should

allow for a smooth adjustment of consumption patterns)

The State has a role to play in overseeing these balances

Attention should be paid to possible adverse labour market

outcomes of increasing pension ages (elderly, young people

employment etc.)

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From adequacy to life long security

Social fairness in regard to vulnerable groups of people

should prevail over actuarial equity

Whether pension indexation should reflect the differential

inflation rate experienced by the elderly should be examined

Pension capital assets allocations should be more strictly

audited and ranked according to risk, yield, performance and

expenses

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From incentives/disincentives to a robust labour market

Working careers should be prolonged

Incentives for “late” payment of pensions and disincentives for “early”

payment should be actuarially balanced

Participation rates for middle ages (50-65) should be strongly

enhanced

Labour market policies should be designed to facilitate the

employability of those at older ages

All working categories should be covered

Policies in relation to increasing pensionable age should take into

account the statistics of healthy life expectancy

Contributions should be properly distinguished between those

intended to finance means-tested benefits (pillar 0) and those

intended to finance earnings-related benefits to facilitate transparency

in relation to taxation and similar aspects

Lump sums should be annuitized

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Illustrative list of measures to be potentially used for

proper indicators’ construction enhancing transparency ╫ Present Value of Contributions (gross/net)

╫ Present Value of Benefits (gross/net)

╫ Internal Rate of Return

╫ Investment Yield/Performance

╫ Percentage of pension assets invested in “risky” asset classes

╫ Life expectancy per cohort

╫ Healthy life expectancy per cohort

╫ Inflation rate experienced by older persons, CPI

╫ Ratio of income of taxpayers minus contributions (before, after taxes)/ Pension benefit (before, after taxes)

╫ Ratio of years spent in working life/ years spent in retirement

╫ Ratio of living standards/consumption per cohorts under comparison

╫ Contribution and career density

╫ Labour market rates (Er, Ur, Pr, Disability)

╫ Statutory, effective and early retirement age

╫ Pension indexation

╫ Wage/Career profiles per cohorts, genders, occupations

╫ Demographic and economic dependency ratio

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Working frame and collaboration

Until 08 05 2014 (SSSC meeting in Brussels):

Prioritize, in collaboration with the WGAge and/or ISG, which points

described above should be the object of future feasible work in

parallel with the group

Propose which are the best tools to measure so as to bring out what

we have to say by numbers

From 09 05 2014 – September 2014:

Propose how they will be used (ratios, differences, confidence levels,

limitations)

Finalize technical Issues (discount rates etc.)

Examine mechanisms to convert measurement tools to indices

Extract the above proposed tools/indices from country questionnaires

or ready reports whichever is easier

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Thank You, Marianna Papamichail SSSC, ADQ TF Chairperson

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Discussion/ Questions