Drivers of pension reform measures in the OECD by Roel Beetsma, Ward Romp, Ron van Maurik published by VOXEU (11/2017)
“Population ageing means that many current pension regimes are unsustainable, but the timing of pension reform measures is a political as well as an economic decision. This column uses new data on OECD pension reforms since 1970 to show that their timing has not been driven by projected demographic developments or political change, but by the state of the economy at the time when reforms were legislated. Pension systems have expanded more frequently during booms, and have contracted during economic downturns.
There is a public debate about the ageing population and its implications for the sustainability of existing pension arrangements. It is, however, not easy to get politicians to agree on reforms to make pensions more sustainable. This is not surprising. These measures inevitably create winners and losers. Worse, the winners from pension reform tend to be the young and future cohorts, while the losers would be current voters. Reform is therefore often only possible when the economic circumstances are sufficiently bad that it is obvious that something must be done.
Research on crisis-induced reform (e.g. Rodrik 1996, Abiad and Mody 2005) finds that a country needs to find itself in a crisis before it is able to adopt structural reform measures. The experience of the Netherlands is an example. After a stagnant decades‐long debate, the pressure of the Global Crisis meant that only a few weeks in 2012 were needed to decide on a schedule to gradually increase the public pension retirement age…”
