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IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
The Case for Universal Minimum Old Age Pension
Pierre Pestieau
CORE, CREPP and PSE
September 23, 2010
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Introduction
Different approaches in developed and developingcountries:
Scarcity of public funds
Importance of informality
Role of the family as old age support
Recent interest for minimum pension in LDC (WorldBank, ILO)
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Outline
Introduction
Concepts and taxonomy
Normative approach
Positive approachSome evidence. LA and EU
Old age povertyImpact and cost of minimum pensions
Conclusions
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Some concepts
A pension system includes both private and publicschemes, particularly when the private schemes aremandatory and subsidized.
Minimum pension:means-tested or unconditionalfamily based or individualized
Old age: when does it start?clear impact on the costcontingent on longevity
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Pluses and minuses of means-testing versusuniversality:
cheaperopen to disincentivesaffects family arrangement when based on familystigma
Pension formulap: the level of pensiony : the level of lifetime earningEy : the mean value of yτ : the flat rate of contributionα: the contributiveness (Bismarckian) parameter
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
We can write
p = τ(α y + (1− α)E y)
Types of pension system:Bismarckian: α =1: pension = private savingBeveridgean: α = 0Means tested: α < 0
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
α = 0, Beveridgean
α =1, Bismarckian
α < 0, Means tested
p
y
Pension systems
p = max[τ(α y + (1− α)y), 0]
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Normative approach
First question: why to focus on old age?Ascending altruism weaker than descending altruismIssue of responsibilityNo other way to help.
Second question: why to focus on poverty andnot inequality?
Less costlyRawlsian concept of justice
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Political economy
Observation of individual practices can beinformative.
Surveys show that voters are more willing tohelp poor in old age than in working age.
In general public pensions tend to be moregenerous where they are Bismarckian.
Voting theory vindicates this view: Programs forthe poor are poor programs.
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Using the parameters τ for generosity and α forcontributiveness (non redistribution), onetheoretically shows that
a Rawlsian decision maker would choose a positive αif τ is chosen by voteτ increases with α.
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Evidence: Latin America
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Evidence: EU
Poverty rates for the elderly population, before and after the universal
pensions
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Disincentive effects of means-testing and HH approach
Labor supply
Saving
Marriage
HH formation
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Limits of minimum pension at alleviating poverty
Take up issue (stigmatisation)
Sharing with non elderly and poor HH members
Non financial needs (health and care)
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Cost is a function of
age at which benefits are awarded
prevailing longevity
generosity of benefits
efficacity of means testing
fiscal capacity of the country concerned
Pierre Pestieau The Case for Universal Minimum Old Age Pension
IntroductionOutline
Some conceptsNormative approach
Positive approachEvidence: Latin America
Evidence: EUConclusion
Conclusion
Crucial question: should fighting poverty in oldage be a priority?
Other question: means test or universal scheme?
Pierre Pestieau The Case for Universal Minimum Old Age Pension