Pension indexation for retirees revisited – Normative patterns and legal standards

Abstract

Maintaining adequate pension levels throughout the entire retirement phase is a persistent challenge in old-age protection. Most public pension schemes in OECD (Organisation for Economic Co-operation and Development) countries provide for some form of indexation for pensions in payment. These mechanisms have been object of frequent revisions for different purposes, in particular across Europe. This article explores the social and financial policy objectives linked to standard indexation parameters in public pension schemes, and offers a rough taxonomy of additional factors used to modify traditional indexation arrangements, with a special focus on changing rules and practices adopted in the European Union (EU) area after the 2008 international economic and financial crisis. Analysis suggests that early responses were mainly driven by cost containment ideas, whereas more recently, a subtle shift towards adequacy-oriented interventions can be noticed. The article argues that restrictive pension indexation rules in combination with overall retrenchment of public pension provision fail to take into account the increasing duration of retirement and corresponding pension erosion. Such failure calls into question not only income security during retirement as a major objective of old-age pensions but also compliance with international standards of social security set by the International Labour Organisation (ILO) and the Council of Europe. More social policy research is needed in view of the increasing complexities of indexation rules, as shortfalls in indexation can cause significant impairment in the living conditions of older pensioners, predominantly women.

Retirement Schemes, its Challenges and Ways of Reformation: A Cross-Border Study

“…Thus, developed countries improved the scheme from defined benefit to defined contribution to social insurance model to protect income which depends on past contributions and earnings (Poterba et al, 2009). Few countries have introduced pre-funded mandatory plans where collected funds invested in different sectors (Hohnerlein, 2019). Besides, every country has its own unique system to serve retiree (Nomura, 2019).…”

“…Furthermore, retirement income is under pressure in the world (Say, 2018). Thus, there are discrepancies with retirement income in between young retires and older retirees (75 years and above) that leads to higher poverty risk for elderly retirees in many countries (Hohnerlein, 2019). Pointedly, government debt distresses to provide benefits in the pay-as-go-system of few countries and long term adequacy of pension benefits are affected through high household debt in other countries (Knox, 2018).…”

“…Likewise, unstable economic development, greater inflation and unemployment rates steadily weakened the financial strength of pension system (Koutronas & Yew, 2017). As a result, global policy makers concern over reform existing retirement plans responding to the demographic changes (higher growth of life expectancy and lower birth rate) with greater emphasize on systemic issues and financial sustainability, for instance, moving system to private and contribution pension scheme and developing multi-pillar systems (Drahokoupil & Domonkos, 2012;Ebbinghaus, 2015;Grech, 2012;Hohnerlein, 2019;Holzmann, 2012;Orenstein, 2011;Schwarz et al, 2014).…”

“…Developed countries improved the scheme from defined benefit to defined contribution to social insurance model to protect income which depends on past contributions and earnings. Few countries have introduced pre-funded mandatory plans where collected funds invested in different sectors (Hohnerlein, 2019). Furthermore, policy makers have emphasized on public retirement plan reformation in order to provide secured income for elderly people along to alleviate poverty risks during retirement (Hohnerlein, 2019).…”

“…Few countries have introduced pre-funded mandatory plans where collected funds invested in different sectors (Hohnerlein, 2019). Furthermore, policy makers have emphasized on public retirement plan reformation in order to provide secured income for elderly people along to alleviate poverty risks during retirement (Hohnerlein, 2019). As a result, most developed and developing countries are shaping their retirement plans through increasing retirement age, influencing people work longer, enhancing funding levels and reducing withdrawal amount before retirement age (Anderson, 2019).…”