Implementation Delays in Pension Retrenchment Reforms

• Published in: Economic review (Kansas City) 2019-04, Vol.104 (2), p.5-22
• Main Authors: Bi, Huixin, Hunt, Kevin, Zubairy, Sarah
• Format: Article
• Language: English
• Subjects: Age; Aging; Baby boomers; Case studies; Datasets; Early retirement; Economic models; Fertility; Fiscal policy; Government spending; Implementation; Life expectancy; National security; Older people; Payments; Pensions; Policy making; Population; Publishing; Retirees; Retirement plans; Social reform; Social security; Wealth
• ISSN: 0161-2387; 2163-422X

As the global population ages, public spending on pensions has increased dramatically. According to the Organisation for Economic Co-operation and Development (OECD), spending on public pensions for OECD countries as a whole rose by 2.5 percent of GDP from 1990 to 2017. Pension spending is likely to rise even more rapidly in the future, with the ratio of the elderly population to the working-age population set to double in the next three decades. As a result, policymakers have increasingly focused on pension retrenchment reforms to keep their pension systems solvent.Pension retrenchment reforms usually involve prolonged phase-in periods or implementation delays. These phase-in periods ease the effects of pension reforms by providing retirees time to adjust their retirement plans. However, phase-in periods also slow the process of scaling back governments' pension spending, possibly raising long-run fiscal risks. Understanding the effects of these phase-in periods may be critical to governments contemplating pension reforms. But quantitative measures on implementation delays are lacking, as it is challenging to systematically collect such data over a long period of time.In this article, we collect a new data set that tracks implementation delays during pension retrenchment reforms for 12 OECD countries from 1962 to 2017. We find that the average phase-in period associated with pension retrenchment reforms is about a decade. However, implementation delays can be significantly longer for age-related pension reforms, which account for a large share of pension retrenchments since 2000. In addition, the distribution of phase-in periods is quite diffuse: implementation delays are often prolonged for far-reaching reforms but short for reforms with limited scope. Finally, we examine implementation delays for reforms in three OECD countries-Japan, Italy, and Belgium-as case studies for future Social Security reforms in the United States, where large-scale changes to the Social Security system have been few and far between.