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Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.
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Chapter 14: The quest for modern pension system design

Marek Góra


Marek Góra 1. INTRODUCTION Population ageing is one of the most difficult challenges of our time. It requires a number of serious adjustments in institutional structures serving societies. Pension reform is at the top of the list since pension systems – especially their old-age parts – strongly depend on demographic structures. Traditional pension system design has proved to be inefficient. The systems in place have started running permanently growing deficits, thus creating deficits much larger than the national GDP in many countries. This economically and socially dangerous situation triggered the quest for modern pension system design. Traditional pension systems have been reformed in several countries. Nonetheless, a large number of countries have either kept their pension systems virtually unchanged or have implemented only partial reforms – I prefer calling them rationalizations – insufficient to cope with the problem of the systems’ financial unsustainability. Due to the demographic changes in the last quarter of the twentieth century, parametric reforms cannot solve the problem; all they can do is postpone it. Although the need for pension reform can be more or less commonly recognized, there is no commonly agreed way of reform. Both professional and non-professional discussions on pension system design seem to be in a deadlock between pay-as-you-go systems and funded pensions. In this chapter I try to get beyond this deadlock. Pension systems – especially if they are universal ones, covering the entire working population – can create positive and negative externalities for economic growth. Mandating people to participate in...

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