Saturday, September 20, 2003

Berlusconi Moves on Pension Reform

Italy plans to raise age in pensions reform

I'd say it's about time too, but will this really be enough to stave off disaster in the long run? Given the ever increasing longevity of Western populations, I don't see how one can avoid moving to a system in which the age of retirement is directly indexed to life expectancy - people don't save aggressively enough in their youth, and even when they do save, they fail to allocate enough of their saving into the riskier asset classes, so they end up with retirement nest-eggs that are smaller than they might have expected, while Pay-As-You-Go systems like America's Social Security, and most of Continental Europe's, are nothing more than glorified pyramid schemes.

The fact is that when Bismarck initiated the first pensions scheme way back in the 19th century, it was never anticipated that most people would be living for decades after they'd become eligible to receive the benefits on offer, which is why nobody ever thought to explicitly link these schemes to actuarial data from the start.