Chapter 13: Adjusting welfare systems to ageing populations – challenges and experiences in OECD countries
Willi Leibfritz1 INTRODUCTION As is well known, the ageing of populations could pose major challenges for welfare systems. Age-related public spending, in particular old-age pensions and health care spending are projected to increase rapidly in the coming decades. This could threaten ﬁscal sustainability. Without adequate reforms the ﬁscal costs of ageing populations would ﬁnally have to be ﬁnanced by higher taxes, which could reduce labour supply and thus erode the base for ﬁnancing welfare systems. Countries have started to adjust their welfare systems, in particular pension systems, better to cope with ageing. This chapter ﬁrst looks at projections of age-related spending in OECD countries. It then discusses the direction in which social security reforms are going. Generally, reforms are aiming to deal with the ﬁscal consequences of ageing and, at the same time, improving the eﬃciency of social systems and labour participation. The success of these reforms depends on how the necessary macro-budgetary controls are accompanied by micro reforms, which improve system eﬃciency and the incentive structure of the economy. Of particular importance is how these reforms aﬀect labour supply. As the share of older workers in the working-age population will increase with ageing populations, policies should aim at reducing labour supply disincentives for older workers. This chapter discusses policies to reduce such disincentives implicit in various social programmes. It ﬁnds that signiﬁcant disincentives exist even after recent reforms. Removing those would help to improve the adjustment of the eﬀective retirement age to rising life...
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