1. Social Security Department International Labour Office Challenges to labour market policies coming from recent social security reforms Will reformed pension systems lead to longer work careers? Krzysztof Hagemejer Social Security Department ILO Geneva 5th ISSA International Research Conference on Social Security "Social security and the labour market: A mismatch? Warszawa, 5-7 March 2007

2. Social Security Department International Labour Office Past changes in implicit tax rates and standard retirement ages are found to explain only a third of the trend decline in older males labour force participation in OECD countries over the last three decades. R. Duval: Retirement Behaviour in OECD Countries: Impact of Old-Age Pension Schemes and Other Social Transfer Programmes, OECD Economic Studies, No. 37, 2003/2, pp. 7-50, p. 41. Experience of some real life « actuarially fair » or neutral pension systems show that they are not preventing people from early retirement (Chile) Will the reformed, strongly earnings and contribution related, pension systems make people to work sufficiently longer and retire sufficiently later to deliver acceptable replacement rates?

3. Social Security Department International Labour Office Demand side factors – Unemployment – Productivity of older workers – Competing demands for (extended) family for care services (children, sick and disabled) provided by retired individuals Supply side factors – Preferences for leisure versus work Higher income, higher demand for leisure High disutility of indecent work What are the other factors affecting retirement decisions and pushing people out of the labour force?

4. Social Security Department International Labour Office Demand side factors (1) In Europe, demographic developments will quite soon ease the pressures of unemployment. Labour shortages may start to prevail This will not eliminate another « demand- side » factor: productivity of older workers: perceived as lower by employers actually lower due to not keeping pace with technological and other changes

5. Social Security Department International Labour Office Demand side factors (2) Many people (particularly women) retire early from the formal labour market because their families expect them to take care of small children or sick and disabled family members So actually they continue working through providing unpaid but important services to the society

6. Social Security Department International Labour Office Supply side factors (1) The right to retire, possibly early, became one of the most significant workers rights acquired in the XX century Confirmed by international labour standards This right for a well deserved and decent retirement is still an unquestioned subject of intergenerational solidarity Retirement pensions changed its function: from a vehicle to finance a « decrepit old-age » to financing a « bright and cheerful autumn of life » Richer people are, more leisure they demand (they have less children and they want to retire early) Is the reversal possible?

7. Social Security Department International Labour Office Supply side factors (2) People retire early because they cannot cope (or do not want to cope anymore) with their working conditions Its not just ability to cope with physical aspects of the working conditions Its also psychological stress Its also not seeing a purpose in work performed, alienation In some professions people do not retire: artists, scientists etc. More « decent » the work, less strong the opposition between « leisure » and « work », longer the economic activity of a person.

8. Social Security Department International Labour Office To make people extending their work (and contributing) careers one needs to address all the factors which determine when and how people retire: – Employment creation – Productivity of older workers – Care services – Working conditions – Legal retirement ages – Design of the pension system Conclusions (1)

9. Social Security Department International Labour Office Conclusions (2): One has to look also how late young people start their contributing careers What would be future pensions of those who start contributing after 30 or later?

10. Social Security Department International Labour Office As the policies necessary to make people contributing longer will not bring immediate effects there will be numerous cohorts retiring in the future with pension amounts below acceptable standards preventing them from falling into poverty Reforms of the recent reforms necessary: – To strengthen non contributory minimum income guarantees (basic pension) – To built into the contributory systems balancing mechanisms preventing replacement rates fall below reasonable levels Conclusions (3)