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Pension Systems IW-Nachricht 17. März 2017

Be careful with benchmarking in pension policy

The Eurogroup will look into the possibility of introducing benchmarking in pension policy. Most European pension systems face a similar demographic challenge. Yet, they differ in many aspects. If this is not taken into account, a benchmarking process is likely to fail its purpose.

The national pension systems of the EU member states differ in many aspects. Within these systems, PAYG and capital-funded elements are specifically combined. Therefore, they react differently to demographic change. Furthermore, they also pursue different normative aims. A closer look on the different reform strategies of the member states leads to the conclusion that different national preferences might influence the decision about which reform path to choose - for example, which generation should be burdened with the effects of demographic change.

When choosing indicators it is therefore important, that a solely fiscal perspective is avoided. Focusing on empirical data only entails the risk of a misguided policy and might misjudge the complexity of the problem.

The Eurogroup should be careful not to choose a too narrow perspective. Consulting should always regard the nation-specific preferences as well as the mix of different elements of old age provision in each member state. The strength of a common reporting does not lie in the definition of elaborated indicators. It lies in the initiation and the support of national reform discussions:

  • Comparing different public pension systems is helpful in identifying obvious conflicts. National governments might be forced to evaluate their social policy in general and their pension policy in particular.
  • Furthermore, a common reporting might help to induce necessary debates within the member states — for example about intergenerational justice. The EU can support such national debates by providing and exchanging information, and by evaluating single member states. Raising the retirement age, for example, might be a recommendable strategy for all EU member states.

It is for the member states to decide which reform path to choose for old-age provision. Only they can be responsible for answering the underlying normative questions. When European actors keep this in mind, long-term and sustainable pension reform policies can be supported successfully.

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