Reforming EU Pension Systems: Equity and Sustainability in Conflict
In recent years, several studies have shown that pension reforms may reinforce existing inequalities or even cause new inequalities across and within generations. Not only are groups of different socioeconomic status (SES) affected differently by pension reforms but pension reforms may induce different behavioral reactions across the life course depending on the SES one belongs to. The paper contributes to this literature in several dimensions.
First, the authors study current pension systems and possible reforms in four European countries (Austria, Germany, Italy and Poland) that differ in their pension set up (with Austria and Germany running a PAYG-DB system and Italy and Poland a NDC system) as well as the pension replacement rate (with higher pension replacement rates in Austria and Italy compared to those in Germany and Poland).
Second, they take into account that aging is heterogeneous across individuals and show that pensions systems that treat all individuals equally can generate unintended re-distributions and may, as a result, augment existing and cause new inequalities.
Third, they use microsimulations together with Bayesian melding to calibrate their model to the four countries (i.e., Austria, Germany, Italy, and Poland).
Fourth, they evaluate current pension systems and four pension reforms (minimum pension benefits (MinPB), progressive pension benefits (PPB), delayed retirement (DR), sustainability factor (SF)) in each of the four countries across several dimensions.