OECD economies are going through an ageing transition in the incoming decades.
\nBetween 2020 and 2060, the ratio between persons aged 15-64 years old to persons older than 64 years will increase from three to almost 2 by 2060. Among them, the Spanish economy \u2018is\u00a0 different\u2019 only in that its ageing transition is one of the most severe, the employment rate is relatively low, and its Pay-As-You-Go (PAYG) pension system is one of the most generous for such an ageing population.<\/p>\n
The existing PAYG \u2018intergenerational contract\u2019 between the working and retired populations can only be made sustainable either by defaulting on the promises to retirees, severely curtailing their\u00a0 pension benefits (delaying retirement age and\/or reducing pension payments), or the promises to those employed, with a severe increase of their contributions, a tax hike that will seriously\u00a0 damage the competitiveness of the economy, or a combination of both; i.e. reneging to all existing promises.<\/p>\n
To avoid this scenario, the authors of this Policy Brief study the benefits that a transition to a \u2018funded\u2019 defined contribution (DC) system that also protects those\u00a0 who lose their jobs would have: the so-called \u2018Worker\u2019s Backpack\u2019 system.<\/p>\n
Pension reforms introduced in 2011 and 2013 pointing in this DC direction were abandoned and the current resource to transfers from the central government budget is a distraction that does not\u00a0 solve the underlying problem, while the recently introduced indexation of pension benefits in an inflationary environment is a dangerous step back. As the Spanish Independent Fiscal Institution\u00a0 recognizes \u201cthe expected increase in healthcare and pension spending as a result of the ageing population is one of the major risks for the sustainability of (Spanish) public finances in the medium\u00a0 and long term\u201d (AIReF, 2022).<\/p>\n
Our enquire provides a novel quantification to these statements, showing the welfare costs for the current and future generations of maintaining the current system, as well as the welfare benefits\u00a0 of a system overhaul with the introduction of a \u2018Worker\u2019s Backpack\u2019 (akin, but more substantial, to the one introduced in Austria in 2003). We show that, if properly designed, it can outperform\u00a0 standard DC pension systems in terms of social welfare and economic efficiency.<\/p>\n","protected":false},"excerpt":{"rendered":"
OECD economies are going through an ageing transition in the incoming decades. Between 2020 and 2060, the ratio between persons aged 15-64 years old to persons older than 64 years will increase from three to almost 2 by 2060. Among them, the Spanish economy \u2018is\u00a0 different\u2019 only in that its ageing transition is one of […]<\/p>\n","protected":false},"featured_media":8682,"template":"","yoast_head":"\n