اصلاحات افزایش طول عمر و تامین اجتماعی یک رویکرد روند قانونی

Increasing longevity causes an upward trend in the dependency ratio in many countries. This raises concerns about the financial sustainability of social security schemes, and reform proposals and initiatives abound. It is shown that a fundamental policy choice inevitably arises since a given social security system cannot be maintained by simply indexing pension ages to longevity. The political reform process is analysed using the so-called legislative procedure. When longevity increases, the retirement age is raised more than proportionally to the increase in longevity, but the young also make larger transfers to the old.

Social security systems are in focus due to undergoing demographic shifts, in particular as a result of increasing longevity. According to UN forecasts (UN, 2004), life expectancy is rising in most countries, and for e.g. European countries, life expectancy at birth will increase from 73.8 in 2005 to 81 in 2050. Most countries face the challenge of how to exploit the opportunities arising from increasing longevity and the implied increase in the share of old people in populations (see e.g. European Commission, 2006 and IMF, 2004). Most countries have social security systems that do not include automatic responses to changes in longevity. Therefore, political decisions are needed to ensure the viability of the systems. Often, social security systems have given statutory pension (and retirement) ages, and these age limits have remained invariant (or have even in some cases declined) despite increases in longevity, cf. Fig. 1. Moreover, most social security systems are of the defined benefit type, providing a given benefit flow (could depend on past earnings and be indexed) from the statutory pension age and until death (see e.g. Werding, 2004); that is, a life annuity is provided. It follows straightforwardly that the combination of given statutory pension ages and benefits provided as life annuities leads to financial problems when longevity increases.It is a highly topical policy issue how social security schemes should be adapted to changes in the demographic composition and in particular to the increase in longevity. This issue is debated widely in most countries, and some countries have already undertaken some reforms. Recent reforms or reform proposals in e.g. US, UK, Germany etc. imply that both pension ages and contribution rates are going to increase. One interesting aspect is that some recent reforms have explicitly made the properties of the social security system contingent on longevity, either by adjusting benefits to longevity1 or by making eligibility ages dependent on longevity. Examples of the former2,3 are found in e.g. Sweden, Italy, Poland and Latvia, and the latter in Denmark. There is a voluminous literature on social security schemes, but, surprisingly, the issue of longevity has not attracted much attention (see however Auerbach and Hassett, 2004a,b; Andersen, 2006). The policy debate has until recently mainly centred on the implications of an increase in the dependency ratio driven by more old relative to young (change in fertility). While this is also an implication of increases in longevity, it is important to be explicit about the reason for the increase in the dependency ratio.4 A change in fertility affects population growth and thus the return offered by a PAYG social security scheme. A change in longevity may also change the return, but in addition it has an individual utility effect. The latter arises through the direct utility effect of the increase in longevity and the indirect effects arising via an increase in the marginal utility of a given present value of benefits (the consumption flow thus becomes smaller) and a possible decrease in the disutility of work (the retirement period becomes longer), see Andersen (2006). Hence, the question of how to adjust the properties of the social security scheme to changes in longevity is not trivial (see also Mulligan and Sala-I-Martin, 2003 and Mulligan and Sala-I-Martin, 2004a). An indexation of pension ages to longevity may seem a simple and fair solution. This would imply that the relative amount of time spent as contributor to and beneficiary of a social security scheme would be the same across generations with different longevity. Consequently, the gain in longevity accruing to a given generation is split proportionally between years in and outside the labour market. However, as is shown in this paper, this solution is not in the feasibility set. If the social security scheme offers a given benefit from retirement and for the rest of life (life annuity), this indexation scheme will not ensure that financial contributions increase to the same extent as the benefits received from the scheme. Hence, more difficult policy choices than a simple indexation of the pension age to longevity are required. There is a relatively large political economy literature on social security systems, see e.g. Galasso and Profeta (2002) and Mulligan and Sala-I-Martin (2004b) for surveys. A first wave of this literature has focused on exploring which social security schemes arise under various political decision structures and various rationales for having such a system (dynamic inefficiency, altruism etc.). A second wave of this literature is exploring further dimensions of social security schemes including its interaction with other welfare arrangements (see e.g. Tabellini, 2000 and Conde-Ruiz and Galasso, 2005) and heterogeneity in retirement (early retirement) (see e.g. Conde-Ruiz and Galasso, 2003, Conde-Ruiz and Galasso, 2004 and Cremer et al., 2006). This paper focuses on changes in fundamentals across generations due to variations in longevity. The question is thus how the properties of the social security scheme are adapted to the fact that different generations are differently positioned.5 Most social security systems stipulate transfers as a life annuity from a given statutory pension/retirement age (see Werding, 2004 and Mulligan and Sala-I-Martin, 2004b). Therefore, we have three key parameters to consider, namely contribution rates, statutory pension ages, and benefit flows. The purpose of this paper is to consider how a social security scheme is adapted along these three dimensions to varying longevity across generations. A social security scheme of a pay-as-you-go (PAYG) type is considered6 in a simple OLG model allowing for both changes in longevity and differences in longevity across generations. For the present paper two issues are important, namely the rationale for social security and the political decision process. Social security is in this paper motivated by altruism across generations. This captures that intergenerational altruism has been an important rationale for the establishment of social security schemes, but it also clearly brings forth the intergenerational distribution issues arising when different generations do not have the same options (here longevity). Concerning the political decision process, it is well-known in the literature that the intergenerational element of social security creates possible time-consistency problems, and as a consequences, there is in general multiple equilibrium. Therefore, a large part of the literature assumes commitment, which can be interpreted as social security being embedded in institutional structures. There are various approaches to modelling the political decision structure, and this paper adopts the so-called legislative procedure among all living generations (see Hansson and Stuart, 1989). That is, all living generations at a given point in time have some influence on the properties of the social security system, and future generations may change the system according to their preferences.7 It is an implication that all living agents (old and young) have a common interest in adopting a social security system of a PAYG nature (see Hansson and Stuart, 1989), even under a decision procedure admitting veto power.8 This approach has two important properties, namely that it implies commitment in the choice of the properties of the social security scheme, and that Pareto-efficient intergenerational allocations are identified, cf. further discussion in Section 3. The paper thus considers social security schemes that can actually be implemented under a well-defined political process rather than focussing on the social optimal scheme. As shown, it is, however, possible to interpret the utilitarian social optimum as a special case within the framework used. This paper is organised as follows: Section 2 develops the OLG model used in the analysis, and Section 3 shows how the properties of the social security system are decided under the legislative approach. Section 4 explores how the key parameters of the social security system – contributions, benefits and retirement age – depend on the longevity of different generations. Section 5 concludes and offers some policy conclusions.

The adaptation of the social security system to changes in longevity has been considered in a basic OLG framework. A key finding is that a proportional indexation of benefits and retirement ages to longevity is not ensuring financial viability of the social security system. Accordingly, further adjustments are needed, and this paper has explored the adjustment implied by the political equilibrium following the legislative approach. When longevity differs across generations, it follows that the properties of the social security scheme are generation (longevity) specific. The concern of current generations for past and future generations, which, in the first place, rationalizes why a social security scheme can be implemented, also implies that all living generations share the adjustment burden arising due to increasing longevity. Hence, even though current old would benefit directly from longer longevity, they also receive a larger transfer from the young; i.e. the current young get lower consumption when the old have longer longevity. The basic reason is that a longer longevity causes the marginal utility of consumption for the old to increase, and this tends to increase the transfer to the old. However, the retirement age increases (relative to longevity), reflecting that the old also participate in “financing” longer longevity by retiring relatively later. These adjustments may look like a retrenchment of the social security scheme, but actually the opposite is taking place since the transfers from the young to the old increase. Observe that political preferences are unchanged, and the adjustment is caused by changing fundamentals, i.e. the increase in longevity. Hence, agents have to adjust, but they are better off as a result of the increase in longevity. In considering political economy aspects of social security schemes, two issues are particularly important. One is to understand the properties of social security schemes arising as an outcome of a political process; another is the drive and obstacles for reforms. The present paper has considered the first of these issues by focussing on how the properties of the social security scheme depend on longevity, and in this way we have suggested how social security schemes are adopted to changes in longevity under a legislative approach. Considering the ongoing debate on the need for reforms of social security schemes due to increasing longevity, there are wide country differences. Some countries have undertaken reforms (cf. introduction), while others seem to be delaying reforms. Whether the latter is due to accumulation of information and clarification of reform options or political obstacles to reforms is an open issue. It is an important issue for further research to clarify the causes and consequences of delay in reforms.