The burden of old-age
benefits. Facts and
Perceptions
Paper prepared for the
Conference of the British Society for
Population Studies
Manchester, 10-12 September 2008
by
Lieve Vanderleyden
lieve.vanderleyden@dar.vlaanderen.be
SVR
Outline of the presentation
• Employment rates at higher ages: an
overview.
• Reasons for leaving the labour market
• Preferred, expected and effective age
of retirement.
• Old-age benefits: are people worried?
• Opinion about governments’ way to
ensure old-age benefits in the future.
• Conclusions - recommendations.
SVR
Employment rates: age 55-64
EU-15 and Flemish Region – 1999-2007
% 60
50
55,3
47,3
43,8
38,1
40
30
33,6
27,0
24,7
20
10
14,0
0
1999
2000 2001
2002
2003
2004
2005 2006
Men age 55-64 - Flemish Region
Women age 55-64 - Flemish Region
Men age 55-64 - EU-15
Women age 55-64 - EU-15
SVR
2007
Some results
• Employment rate is lower in Flemish
Region than in de EU-15 for both men
and women in the age of 55-64.
• Flemish men nearing EU-average
quicker than women.
• The increasing employment rate is for
the most part the result of the rise of
the rate for people in the age group 5559.
SVR
Decomposition of increase in
employment rate (55-64)
• Evolution of employment rate between
year (t) and year (t-1) = total effect
• Total effect = demographic effect +
net effect
• Demographic effect = internal
change in age composition of the group
55-64
• Net effect = change in pattern of
participation
SVR
Decomposition of increase in
employment rate (55-64)
Demographic effect:
employment rate year (t) with
age composition year t
employment rate year (t) with
age composition year (t-1)
--------------------------------------------------Net effect =
employment rate year (t) with
age composition year (t-1)
employment rate year (t-1) with
age composition year (t-1)
SVR
Results of Decomposition
(Flemish region)
Effect
Total
population
Men
Women
20012002
20022003
20032004
20042005
20052006
Total effect
1.07
0.92
2.94
1.06
0.83
Demographic effect
0.54
0.72
0.16
0.10
-0.47
Net effect
0.54
0.20
2.78
0.96
1.30
Total effect
0.22
1.21
2.58
1.79
-0.61
Demographic effect
0.75
1.01
-0.01
0.39
-0.84
Net effect
-0.53
0.19
2.59
1.40
0.23
Total effect
1.86
0.61
3.15
0.40
2.25
Demographic effect
0.34
0.40
0.22
-0.16
-0.11
Net effect
1.52
0.20
2.93
0.55
2.36
Source: Department Work and Social Economy
SVR
Demographic versus net effect (in
percent points) – men and women
2,94
2,78
1,3
1,07
1,06
0,92
0,96
0,72
0,83
0,54 0,54
0,2
2001-2002
2002-2003
0,16
0,1
2003-2004
2004-2005
2005-2006
-0,47
Total effect
SVR
Demographic effect
Net effect
Men
3,5
3
2,5
2
1,5
1
0,5
0
-0,5
-1
-1,5
2,58 2,59
1,79
1,4
1,21
1,01
0,75
0,22
0,39
0,19
2001-2002 2002-2003
-0,53
Total effect
2003-2004
-0,01
3,15
3
Women
2,5
2
1,5
2005-2006
-0,61
-0,84
Net effect
2,93
2,25
1,86
2,36
1,52
1
0,5
2004-2005
Demographic effect
3,5
0,23
0,34
0,61
0,4
0,2
0,22
0,4
0,55
0
-0,5
SVR
2001-2002
2002-2003
Total effect
2003-2004
2004-2005
-0,16
Demographic effect
Net effect
2005-2006
-0,11
Interpretation
• 2001-2002: total effect in increase of employment rate
in the age group 55-64 of men and women: 50 percent
is demographic; 50 percent is net.
• From 2003-2004 on: demographic effect decreases,
being negative in 2005-2006.
• Forecast demographic effect (men and women):
2006-2007: -0.58
2007-2008: -0.29
2008-2009: -0.13
2009-2010: -0.05
SVR
Some facts
• Belgium = one of the European countries with
a very low employment rate at the age of 5564.
• Feminization of labour force = later than in
other European countries.
• Exit from the labour market by different exit
routes like early retirement programmes,
generous unemployment and disability
arrangements.
SVR
• The likelihood to retire earlier: the theory of
social comparison (Festinger, 1954) as one
possible explanation.
• People tend and expect from themselves to
perform as do other similar people (reference
group); constant social pressure on the
individual to behave similar with the others.
• In case of the existence in a country of a
strong early retirement culture: most people
tend to follow this pattern and do retire early
from the labour market (also due to (too)
generous exit schemes).
SVR
Early retirement in Flanders:
Reasons for leaving the labour
market
• On the individual level: people do want to
retire earlier than the statutory age of
retirement in order to enjoy life and to do the
things they like (60 percent very important or
important).
• Second: work is becoming too heavy.
• Third: to make room for younger people.
SVR
Early retirement in Flanders:
Reasons for leaving the labour
market: some figures
100%
80%
60%
40%
20%
very important / important
SVR
not important / not unimportant
care for
others
people leave
at a certain
age
no financial
incentive
enterprise
restructuring
health
reasons
to make
room for
younger
people
work (too)
heavy
more
freedom
0%
unimportant / not at all important
Policy measures
• Governments’ awareness of the necessity to
change
• Generation pact of 2005 with 4 goals:
 Abolishment of early retirement schemes (from the
age of 58 now to 60).
 Higher availability for the labour market.
 Substitution of an age approach by a life course
approach.
 Extension of the admission for pensioners to work
after retirement age (which will be 65 for men and
women in 2009 - actually 64 for women).
SVR
Preferred, expected and
effective age at retirement
(Belgium)
63
6
62
5,8
61
5,6
5,4
age
59
5,2
58
5
57
56
4,8
4,7
4,6
55
4,8
4,6
4,4
54
4,4
53
4,2
52
4
2003
SVR
5,2
2004
2005
2006
expected age of retirement
effective age of retirement
preferred age of retirement
difference (in years) between exp and pref age
2007
difference in years
60
Results
• Little evolution in the preferred age of retirement
between 2003 and 2006 (remains more or less stable
around the age of 56). Between 2006 and 2007 the
increase is more outspoken.
• Expected age of retirement is rising: people do realize
that they will have to work longer.
• Effective age of retirement: increase between 2003 and
2005, relapse in 2006 but increase again in 2007.
• Difference between preferred and expected age of
retirement remains (4.7 years in 2003; 4.8 years in
2007).
SVR
Unsustainability of the
pension system?
• Is it a real problem?
• Is the pension allowance sufficient
for those who retire?
• Are people worried about the
future?
SVR
Some answers
• Pensions in Belgium are among the lowest of the
industrialized countries (OECD, 2007).
• According to a recent study, the legal pension in
Belgium is insufficient to guaranty the standard of living
before retirement.
• This is due to a simple mechanism: wages increase
annual with 2.25 percent on average, pensions only
with 0.5 percent (are not entirely linked to wage
progress).
• Conclusion: many questions with regard to first pillar
system (legal pension).
• Only few data on 2nd and 3rd pillar (own dataset for
2008, not yet ready for analysis). Important to know:
how many people are covered by those pillar schemes
(additional pension; private pension savings)?
SVR
Are people afraid of the
future?
• Data stem from survey in 2001-2002,
Flemish region, with respondents 55–90 years
of age.
• Question was: are you afraid that
government will not be able to pay pensions
in the future?
• Results: 12 percent are really worried, 16
percent a little bit, 24 percent slightly and 46
percent not at all.
• Analysis: logistic regression was applied in
order to detect the most important
determinants.
SVR
Worrying on payment of pensions in relation to
some characteristics of respondents
Odds-ratio
Worried (ref. not much or
not worried at all)
Age (ref. age 80 and over)
Age 55-59
3.304*
Age 60-64
2.625*
Age 65-69
1.276
Age 70-74
1.450
Age 75-79
1.329
Education (ref. primary education
Higher education
1.411***
or less)
Secondary education
1.180
Perception of the income (ref.
Very difficult or difficult
3.872*
easy or very easy)
Rather difficult
2.476*
Rather easy
1.450**
Most important source of income
Other income than mentioned
1.565
(ref.
Self-employed remuneration
4.291*
Own pension, family pension or
3.221**
income
from
saving or property)
investment,
pension of the partner
Unemployment allowance or other
social security allowance
SVR
3.609**
Worrying on payment of pensions in relation to
some characteristics of respondents (cont’d)
Loneliness (ref. never lonely)
Often or sometimes
1.314***
Prefer more vertical contacts
Yes
1.569**
contacts
Yes
1.355
non-familial
Yes
1.174
Self-rated health (ref. bad or
Very good or good
1.327
very bad)
Fair
1.140
Health status compared to 5
Worse
1.526***
years ago (ref. better)
The same
1.071
(ref. no)
Prefer
more
lateral
(ref. no)
Prefer
more
contacts (ref. no)
Model Chi²
235.140
p<0.001
Nagelkerke R²
* p<0.001
SVR
**p<0.01
0.161
***p<0.05
Interpretation
• Perception of income = most important
determinant for worrying on the payment of
the pensions in the future.
If the income situation is regarded as (very)
difficult ► likelihood to worry is 4 times
higher.
• The same applies to the source of income:
those with a allowance are much more
worried than people who have an income from
capital, savings or property.
SVR
Interpretation (cont’d)
• By controlling for economic status:
impact of social conditions remains.
Health status compared with some years
ago ► more relevant than self-rated
health of the moment: those who
evaluate their health worse than 5 years
ago may fear some financial
consequences.
Those who are lonely or less supported
by their environment are more worried.
SVR
Interpretation (cont’d)
• Bivariate effect of marital status and
household composition disappears.
• Remarkable finding: having or not
having children has no impact on the
attitude of elderly persons (confirms
the thesis that elderly do not want to
be a burden for their offspring).
SVR
How to ensure old-age
benefits in the future?
•
•
•
SVR
Policy measures:
- Raise the retirement age
- Raise monthly taxes
- Lower monthly benefit payment to pensioners
- Force children to support their parents
- Abolish early retirement programmes
- Make old-age benefits dependent on number of
children
Preference:
1. Abolishment of early retirement programmes
2. Raising monthly taxes
Dislike / oppose:
1. Force children to support their aged parents
2. Lower monthly payment to pensioners
Conclusions
• Government became aware of necessity to
adapt to changed circumstances (low
employment rate, too large numbers in early
retirement, …)
• People do agree on the necessity to work
longer, however their beliefs and attitudes do
not necessarily reflect their precise behaviour
(still important gap between effective age at
retirement and the preferred/expected age).
• Productivity gain as compensation for shorter
working careers?
SVR
Conclusions (cont’d)
• People do not worry that much about the
payment of pensions in the future but some
are more worried.
• Public opinion is in favour of measures such
as abolishment of early retirement schemes
but at the same time ….
• Raising monthly taxes (second most
preferable measure) is not very realistic in
Belgium. This strategy is out of the question
(too much burden on GDP already)
SVR
Conclusions (cont’d)
• Less people at working age in the future: how
to keep people active as long as possible:
financial incentives for extra working years,
better working conditions, more flexibility,… .
• There is still need for further action to
increase female labour market participation.
SVR
Thanks for your attention
SVR