A study from Professors Juan Antonio Lacomba Arias and Francisco Lagos García, of the Economic Theory and History Department of the University of Granada and from Enrique Fatás, from the University of Valencia, has proved that those systems that include an additional payment in the first period in which pensions can be required, are much more effective in delaying the retirement decision than those which periodically distribute additional payments to retirement pensions.
The article, published in the prestigious Economic Inquiry journal, hopes to draw attention to the need and priority of a great debate in Spain where “it could be possible to collect the widest range of alternatives to carry out a reform of Social Security”. The authors of the article point out that, as this proposal does not involve a modification of the redistribution of pensions, “maybe we should study its application in our country, at least, as a complementary measure. Once the contributions made by an individual have provided the right to a decent annual pension, all the years this individual would continue paying could be translated, if he or she desires so, into a subsequent single payment at the moment of retirement”.
Government Reform
The Spanish government has carried out a wide range of measures lately in order to reform Social Security. Since the 1st of January of 2008, workers can extend their work life beyond the age of 65 if they want to. It will let them to increase their pension 2% every year they continue paying the contribution. It is one of the measures included in the reform of the Social Security Act, approved by the House of Commons (lower chamber of the Spanish Parliament) last November 22nd.
The reform proposal has been taken from very different fields, such as the OECD (Organisation for Economic Co-operation and Development), as the logical solution that will remove, or at least ease, the present gap in the protection system.
The authors of this research remark that the investment of the population pyramid and the improvement of life expectancy joined with low birth rates, are giving rise to a progressive decline in the working population while retired population becomes more and more numerous. “Besides, this tendency has been reinforced by the incentives entrenched in the public pension systems, which lead workers to a premature abandonment of the workforce”. These facts (population aging and anticipated retirements) endanger the future financial autonomy of distribution pension systems.
Rise retirement age
In a first approach to the problem, “it seems really tempting to try to overcome future budgetary imbalances by simply raising the legal retirement age”. If we need people to work more, it is as easy as increasing the minimum age that gives access to anticipated retirement such as the standard age of retirement. “However, increasing these ages does not seem to be widely supported by population, in fact, it is quite the opposite”.
According to several recent surveys, most workers tend to show a high level of rejection towards their present retirement age. A survey made in January of 2005 by insurance company AXA, based on a sample of 9,300 people in 15 of the most industrialized countries (Spain among them), could be an example. The result of this survey was that there is a wide opposition towards increasing workers’ retirement age limit, and that this rejection gets even greater when workers are close to their retirement age.
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Reference
Prof. Francisco Lagos García. Economic Theory and History Department of the University of Granada.
Phone number: (+34) 958 249605.
Email address: fmlagos@ugr.es
