International Handbook on Ageing and Public Policy
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International Handbook on Ageing and Public Policy

Sarah Harper, Kate Hamblin, Jaco Hoffman, Kenneth Howse and George Leeson

The International Handbook on Ageing and Public Policy explores the challenges arising from the ageing of populations across the globe for government, policy makers, the private sector and civil society. It examines various national state approaches to welfare provisions for older people, and highlights alternatives based around the voluntary and third-party sector, families and private initiatives. The Handbook is highly relevant for academics interested in this critical issue, and offers important messages for policy makers and practitioners.
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Chapter 11: Rational pension reform

Axel Börsch-Supan


Pension reform is called the ‘third rail’ in politics, referring to the high-voltage rail in underground transportation. Touching it spells trouble. Pension reform attempts have caused violent demonstrations in countries with a strong leftist movement such as France and Greece, but pension reform has also failed in the archetypical capitalist country of the USA, where the last significant reform took place in 1983, followed by 25 years of debate and several commissions without producing much of a tangible result. On the other hand, pension reforms are needed since the social, economic and demographic environments are constantly changing. Arguably most important for pension systems is the fundamental demographic transition of population aging, which will make public pension systems unsustainable all over the world in the very foreseeable future. Given that pension reforms are a necessity, but also given that they are likely to hurt politicians, an attractive idea is to automate inevitable adjustments of the pension system through indexation rules and other self-stabilization mechanisms. This is the topic of this contribution. It reflects on the design and the success of pension reforms that attempt to minimize discretionary decisions by political institutions that easily get pressured into doing nothing because short-run costs for the current actors are higher than long-run benefits for society as a whole.

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