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Report to the Committee on the Budget, U.S. Senate:
United States Government Accountability Office:
GAO:
January 2008:
Entitlement Reform Process:
Other Countries' Experiences Provide Useful Insights for the United
States:
GAO-08-372:
GAO Highlights:
Highlights of GAO-08-372, a report to the Committee on the Budget, U.S.
Senate.
Why GAO Did This Study:
Looking to the future, our nation faces large and growing structural
deficits and escalating federal debt due primarily to rising health
care costs and known demographic trends. Slowing the growth of
entitlements is an essential part of the solution to these challenges.
GAO was asked to identify useful insights from the entitlement reform
processes in other countries. Specifically, GAO was asked to analyze
(1) other countries’ major efforts to reform entitlement programs, (2)
the pressure(s) that led countries to undertake the reforms, (3) how
reform proposals were developed, and (4) to what extent enacted reforms
built in triggers requiring future actions under certain conditions;
and where such trigger mechanisms did not exist, whether some
adjustments nonetheless occurred.
GAO conducted a literature review focusing on developed, high-income
Organisation for Economic Co-Operation and Development (OECD) countries
facing similar fiscal challenges. To gain a more in-depth understanding
of reform process, GAO selected three efforts for further study:
Sweden’s pension reform in 1998, Germany’s pension reform in 2004, and
the Netherlands’ disability reform in 2005. For these cases GAO
interviewed government officials, reform participants, and experts
knowledgeable about the reforms.
What GAO Found:
Other countries’ experiences suggest that reform of entitlement
programs is difficult but also possible. Several countries more
advanced in population aging and facing greater demographic challenges
than ours have successfully undertaken reforms of major entitlement
programs. Since the 1980s, almost all of the OECD countries have
restructured their public pension programs; disability, unemployment,
and other programs have also been reformed. Many reform efforts began
or accelerated in an environment of economic and fiscal crisis. Other
prompts included longer term concerns about population aging and
economic competitiveness, and supranational factors such as a desire to
meet the fiscal criteria for entry into the European Union. In many
countries, reform occurred despite political processes that made it
difficult. Consensus had to be built in coalition governments, and
leaders had to work across parties to achieve a broad consensus for
reform.
Commissions were generally used to develop proposals, but this was only
one stage in the reform process. Leaders needed to define the problem,
persuading others that reform was needed and urgent. The challenge was
to build a broad coalition to assure the reform’s permanency while
preserving the main policy initiatives sought in the reform process.
* In some reform efforts political leaders used the “bully pulpit” to
educate the public but in some cases commissions also helped. Achieving
a broad consensus across parties and groups was key to enacting and
sustaining reform.
* Proposals were generally developed by ad hoc commissions established
by governments with a strong commitment to reform. Commissions in case
study efforts that developed proposals were small, with varying
composition. They removed divisive issues from the usual political
process, facilitating consultation and negotiation needed to devise a
reform package. Commissions also helped to insulate policymakers from
political risk.
* Reform processes were generally complex and often conflict-ridden
before they ultimately succeeded in enacting legislation. Many reforms
were iterative. Following reform enactment, a need for additional
changes sometimes emerged.
* In some countries standing commissions were established to monitor
pension systems and make recommendations for change. Some recent
pension reforms have included mechanisms to automatically adjust
benefits if adopted reforms prove insufficient to make programs
sustainable.
What GAO Recommends:
GAO is making no new recommendations in this report.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-372]. For more information, contact Susan
J. Irving at (202) 512-9142 or irvings@gao.gov.
[End of section]
Contents:
Letter:
Background:
Results in Brief:
Many Countries Have Reformed Entitlement Programs and Reform Efforts
Continue:
A Variety of Pressures Have Led to Entitlement Reform in Other
Countries:
How Reform Proposals Were Developed in Other Countries:
The Reform Process May Continue Following Enactment of Legislation:
Implications for the United States:
Appendix I: Scope and Methodology:
Appendix II: Summary of Selected U.S. Commissions:
Appendix III: Summary of Selected Reform Efforts:
Appendix IV: Pension Reform in Sweden:
Reform Overview: Significance of the Reform:
Origins of Reform:
The Reform Process:
Post-Reform Implementation and Adjustments:
Legacy of the Reform:
Appendix V: Disability Reform in the Netherlands:
Reform Overview: Significance of the Reform:
Disability in the Netherlands Differs from that in the United States:
Origins and History of Reform:
Structural Reform Implemented in 2006, Prompted by the Donner
Commission:
Expectations: The Future of Reform:
Appendix VI: Pension Reform in Germany:
Reform Overview: Significance of the Reforms:
Origins and History of the Reforms:
The Reforms and the Public:
Expectations: The Future of Reform:
Appendix VII: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Sweden's Public Pension System, Pre-and Post-Reform:
Figures:
Figure 1: Elderly Dependency Ratio for Selected High-Income Countries,
1980 to 2020:
Figure 2: Public Spending on Old-Age and Survivors' Pensions in
Selected High-Income Countries, 1990 and 2003:
Figure 3: Spending on Health Care as a Percent of GDP for Selected High-
Income Countries in 2005:
Figure 4: Key Events in Sweden's Pension Reform, 1982 through 2001:
Figure 5: Key Events in the Netherlands Disability Reform Process:
Figure 6: Disability Beneficiaries in the Netherlands: 1968 through
2007:
Figure 7: Key Events in German Pension Reform Process:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
January 18, 2008:
The Honorable Kent Conrad:
Chairman:
The Honorable Judd Gregg:
Ranking Member:
Committee on the Budget:
United States Senate:
Our nation faces a future fiscal challenge that poses severe and
unacceptable risks to the federal budget and our economy. Absent policy
change, in the future we face large and growing structural deficits and
escalating federal debt due primarily to rising health care costs and
known demographic trends. Continuing on this imprudent and
unsustainable fiscal path will gradually erode, if not suddenly damage,
our economy, our standard of living, and ultimately our national
security. Unless action is taken, our current path will increasingly
constrain our ability to address emerging and unexpected budgetary
needs and increase the burdens that will be faced by our children,
grandchildren, and future generations of Americans.
Taken together, Social Security, Medicare, and Medicaid are the major
drivers of our future fiscal challenge. While the appropriate level of
revenues will be part of the debate about our fiscal future, making no
changes to spending on Social Security, Medicare, Medicaid, and other
drivers of the long-term fiscal gap would require ever-increasing tax
levels-something that seems both inappropriate and implausible.
Substantive reform of Social Security and our major health programs
remains critical to recapturing our future fiscal flexibility.
Last year several proposals were made to establish special groups to
help develop proposals for entitlement reforms to address the long-term
fiscal challenge. On September 18, 2007, you jointly introduced a bill
to establish a Bipartisan Task Force for Responsible Fiscal Action.
Composed of Members of Congress and Administration officials, this
group would be asked to make recommendations on how to significantly
improve the government's long-term fiscal imbalances.[Footnote 1]
Others have also introduced proposals to establish special groups with
similar aims.[Footnote 2] At the Senate Budget Committee's October 31,
2007, hearing on the Bipartisan Task Force proposal, I testified that
this approach offers one potential means to achieve the objective of
taking steps to make the tough choices that will be necessary to
address the long-term fiscal challenge.[Footnote 3] As I have noted,
revenues will also have to be on the table as we address the long-term
fiscal challenge, but slowing the growth of entitlements is a necessary
component of the solution. Accordingly, I have called for the
establishment of a commission that would address the long-term fiscal
challenge by developing proposals to put Social Security on a
sustainable path and begin the reform of health care and the tax
system.[Footnote 4]
You asked us to look at entitlement reforms in other countries with an
eye to identifying useful insights and possible "lessons learned" from
their reform process.
Specifically, you requested that we analyze:
(1) other countries' major efforts to reform entitlement programs,
(2) the pressure(s) that led countries to undertake the reforms,
(3) how reform proposals were developed (the structure or process used-
-e.g., commissions or special groups within the government), and:
(4) to what extent enacted reforms built in triggers requiring future
actions under certain conditions; and where such trigger mechanisms did
not exist, whether some adjustments nonetheless occurred.
We looked at the reform process in selected developed countries with a
focus on instances where the reform process had included commissions or
other special groups. We limited our review to developed, high-income
Organization for Economic Co-operation and Development (OECD) countries
facing similar but even more daunting long-term challenges and
demographic changes than the United States. From our literature review
we identified instances in other countries where enacted reforms to
programs such as pension or other social welfare programs were expected
or intended to slow cost growth and increase fiscal sustainability.
Although OECD countries have made many reforms to their health care
systems since the 1980s, and reform efforts continue, we found no
country that has been able to optimize the multiple goals of cost
containment, access, and quality over time. Some countries have already
undertaken national pension reform efforts to address demographic
changes similar to those occurring in the United States, and in a
previously issued report we drew lessons from their
experiences.[Footnote 5] Based on this, we selected three reform
efforts for further study, including examples of both iterative and
noniterative types of process: Sweden's pension reform in 1998;
Germany's pension reform in 2004; and the Netherlands' disability
reform in 2005. In these three cases we consulted with government
officials, reform participants, and others knowledgeable about the
specifics of the reform process.
We did not evaluate the effect of reforms on beneficiaries or on
program effectiveness. Consideration of any entitlement reform process
should not be taken to imply approval of the specifics of any given
reform. We limited our review to documents available in English. (For
more information on our scope and methodology, see app. I.) We
conducted this work in accordance with generally accepted government
auditing standards from July 2007 through January 2008.
Background:
In all countries, entitlement programs such as public pension programs
and disability programs are politically sensitive and difficult to
change. The hard choices needed to change the path of these programs
include trade-offs that are likely to result in redistribution,
creating "winners" and "losers." Such choices raise issues of fairness
and access, embodying varying views about the appropriate roles of
government and individuals in society. Reform may entail short-term
sacrifice for long-term gain. Some experts have expressed the view that
entitlement reform in the United States faces unique challenges due to
the existence of multiple program constituencies combined with a
complex legislative process with many hurdles to enactment.
Since the early 1990s, several commissions have been established to
develop entitlement reform proposals, and considerable public debate,
especially on Social Security reform, has taken place. (See app. II for
more information on historical U.S. commissions on entitlement reform.)
Both the current President and his predecessor discussed the need for
Social Security reform and participated in related town meetings on
Social Security, raising public awareness of the need for change. We
have developed criteria to help Congress evaluate Social Security
reform proposals.[Footnote 6] These criteria reflect the multiple and
conflicting goals that will have to be balanced in any reform package.
To date, major structural change to the entitlement programs that drive
the long-term fiscal challenge has not been enacted.
With regard to both Social Security and Medicare, consensus on the need
for reform and reform approaches remains elusive. For example, some do
not believe fundamental structural change to Social Security is
necessary. Among those who have developed proposals, some include
individual accounts and others do not. No major changes have been
enacted to Social Security since 1983, when reform legislation based on
a proposal developed by the Greenspan Commission was enacted in
response to a near-term crisis in program financing. In contrast,
Medicare has been modified frequently, but the most significant change
was a 2003 expansion of benefits to include prescription drugs. This
step served to significantly increase the fiscal imbalance in the
Medicare program.
Challenges posed by the growth path of entitlement spending are not
unique to the U.S. Other developed countries have faced and continue to
face the challenges of unsustainable social welfare programs including
public pensions and health care. Moreover, many developed countries,
especially in Western Europe, face more daunting demographic shifts due
to population aging than the U.S. Figure 1 shows changes in the elderly
dependency ratio-the number of older people relative to those of
working age. As figure 1 shows, population aging in France, Germany,
Italy, Japan, Sweden, and the United Kingdom is already as advanced
today as is projected for the U.S. in 2020.
Figure 1: Elderly Dependency Ratio for Selected High-Income Countries,
1980 to 2020:
[See PDF for image]
This figure is a multiple vertical bar graph illustrating the elderly
dependency ratio for selected high-income countries, 1980 to 2020. The
vertical axis of the graph represents number of elderly per 100 persons
of working age. The horizontal axis of the graph represents eleven
countries. The following data is depicted, with numbers approximated:
Country: Australia;
Number of elderly per 100 persons of working age, 1980: 15;
Number of elderly per 100 persons of working age, 2000: 19;
Number of elderly per 100 persons of working age, 2020 (projected): 38.
Country: Canada;
Number of elderly per 100 persons of working age, 1980: 15;
Number of elderly per 100 persons of working age, 2000: 18;
Number of elderly per 100 persons of working age, 2020 (projected): 38.
Country: France;
Number of elderly per 100 persons of working age, 1980: 21;
Number of elderly per 100 persons of working age, 2000: 23;
Number of elderly per 100 persons of working age, 2020 (projected): 32.
Country: Germany;
Number of elderly per 100 persons of working age, 1980: 22;
Number of elderly per 100 persons of working age, 2000: 22;
Number of elderly per 100 persons of working age, 2020 (projected): 34.
Country: Italy;
Number of elderly per 100 persons of working age, 1980: 20;
Number of elderly per 100 persons of working age, 2000: 25;
Number of elderly per 100 persons of working age, 2020 (projected): 35.
Country: Japan;
Number of elderly per 100 persons of working age, 1980: 11;
Number of elderly per 100 persons of working age, 2000: 23;
Number of elderly per 100 persons of working age, 2020 (projected): 46.
Country: Netherlands;
Number of elderly per 100 persons of working age, 1980: 17;
Number of elderly per 100 persons of working age, 2000: 20;
Number of elderly per 100 persons of working age, 2020 (projected): 32.
Country: New Zealand;
Number of elderly per 100 persons of working age, 1980: 16;
Number of elderly per 100 persons of working age, 2000: 17;
Number of elderly per 100 persons of working age, 2020 (projected): 25.
Country: Sweden;
Number of elderly per 100 persons of working age, 1980: 25;
Number of elderly per 100 persons of working age, 2000: 27;
Number of elderly per 100 persons of working age, 2020 (projected): 33.
Country: United Kingdom;
Number of elderly per 100 persons of working age, 1980: 23;
Number of elderly per 100 persons of working age, 2000: 24;
Number of elderly per 100 persons of working age, 2020 (projected): 31.
Country: United States;
Number of elderly per 100 persons of working age, 1980: 16;
Number of elderly per 100 persons of working age, 2000: 17;
Number of elderly per 100 persons of working age, 2020 (projected): 24.
Source: United Nations, World Population Prospects: The 2006 Revision,
and World Urbanization Prospects: The 2005 Revision.
Note: The number of individuals over age 59 for each 100 persons of
working age, defined as age 15 to 59.
[End of figure]
Spending on public pensions has presented major challenges in many
countries where such spending generally represents a larger share of
the total economy than in the U.S. Figure 2 shows this spending as a
share of gross domestic product (GDP) in selected high-income countries
in 1990 and 2003.
Figure 2: Public Spending on Old-Age and Survivors' Pensions in
Selected High-Income Countries, 1990 and 2003:
[See PDF for image]
This figure is a multiple vertical bar graph illustrating the public
spending on old-age and survivors' pensions in selected high-income
countries, 1990 and 2003. The vertical axis of the graph represents
percent of GDP from 0 to 16. The horizontal axis of the graph
represents eleven countries. The following data is depicted, with
numbers approximated:
Country: Australia;
Percent of GDP, 1990: 3.5;
Percent of GDP, 2003: 4.
Country: Canada;
Percent of GDP, 1990: 4.1;
Percent of GDP, 2003: 4.2.
Country: France;
Percent of GDP, 1990: 10.8;
Percent of GDP, 2003: 12.2.
Country: Germany;
Percent of GDP, 1990: 10.4;
Percent of GDP, 2003: 12.0.
Country: Italy;
Percent of GDP, 1990: 10.4;
Percent of GDP, 2003: 14.0.
Country: Japan;
Percent of GDP, 1990: 5.0;
Percent of GDP, 2003: 9.0.
Country: Netherlands;
Percent of GDP, 1990: 7.2;
Percent of GDP, 2003: 6.4.
Country: New Zealand;
Percent of GDP, 1990: 7.8;
Percent of GDP, 2003: 4.5.
Country: Sweden;
Percent of GDP, 1990: 9.2;
Percent of GDP, 2003: 10.4.
Country: United Kingdom;
Percent of GDP, 1990: 5.5;
Percent of GDP, 2003: 6.0.
Country: United States;
Percent of GDP, 1990: 6.0;
Percent of GDP, 2003: 6.1.
Source: OECD Social Expenditures Database, as shown in Pensions at a
Glance: Public Policies across OECD Countries, 2007 Edition.
[End of figure]
As in the U.S., health care cost growth presents challenges in OECD
countries, with total healthcare spending, both public and private,
generally rising as a share of GDP in the last 10 years.[Footnote 7]
Although total health care spending in other countries is smaller as a
share of the economy than in the United States, a larger share of that
spending is public. On average, the public share of health spending in
OECD countries was 73 percent in 2005.[Footnote 8] For example, in 2005
public health spending as a share of GDP in Germany was 8.2 percent, or
77 percent of total health spending; in France 8.9 percent, or 80
percent of total health spending; and in the U.K. 7.2 percent, or 87
percent of total health spending. In the U.S., public health spending
was 6.9 percent of GDP, or 45 percent of total health spending in
2005.[Footnote 9] Figure 3 shows public and private health spending in
2005 for selected countries.
Figure 3: Spending on Health Care as a Percent of GDP for Selected High-
Income Countries in 2005:
[See PDF for image]
This figure is a stacked vertical bar graph illustrating the spending
on health care as a percent of GDP for selected high-income countries
in 2005. The vertical axis of the graph represents percent of GDP from
0 to 16. The horizontal axis of the graph represents ten countries. The
following data is depicted:
Country: Australia;
Private spending on health care as a percentage of GDP: 3.1;
Public spending on health care as a percentage of GDP: 6.4;
Total spending on health care as a percentage of GDP: 9.5.
Country: Canada;
Private spending on health care as a percentage of GDP: 2.9;
Public spending on health care as a percentage of GDP: 6.9;
Total spending on health care as a percentage of GDP: 9.8.
Country: France;
Private spending on health care as a percentage of GDP: 2.2;
Public spending on health care as a percentage of GDP: 8.9;
Total spending on health care as a percentage of GDP: 11.1.
Country: Germany;
Private spending on health care as a percentage of GDP: 2.5;
Public spending on health care as a percentage of GDP: 8.2;
Total spending on health care as a percentage of GDP: 10.7.
Country: Italy;
Private spending on health care as a percentage of GDP: 2.1;
Public spending on health care as a percentage of GDP: 6.8;
Total spending on health care as a percentage of GDP: 8.9.
Country: Japan;
Private spending on health care as a percentage of GDP: 1.5;
Public spending on health care as a percentage of GDP: 6.6;
Total spending on health care as a percentage of GDP: 8.1;
Country: New Zealand;
Private spending on health care as a percentage of GDP: 2.0;
Public spending on health care as a percentage of GDP: 6.9;
Total spending on health care as a percentage of GDP: 7.9.
Country: Sweden;
Private spending on health care as a percentage of GDP: 1.4;
Public spending on health care as a percentage of GDP: 7.7;
Total spending on health care as a percentage of GDP: 9.1.
Country: United Kingdom;
Private spending on health care as a percentage of GDP: 1.1;
Public spending on health care as a percentage of GDP: 7.2;
Total spending on health care as a percentage of GDP: 8.3.
Country: United States;
Private spending on health care as a percentage of GDP: 8.4;
Public spending on health care as a percentage of GDP: 6.9;
Total spending on health care as a percentage of GDP: 15.3.
Source: OECD Health Data 2007 database.
Notes:
Public expenditures include those incurred by public funds including
state, regional and local government bodies and social security
insurances. Private expenditures include out-of-pocket payments,
payments by private insurances, charities and for occupational health
care. For more information on OECD's methodology, see [hyperlink,
http://www.ecosante.org/OCDEENG/411000.html]:
The relative shares of public and private spending do not reflect
government tax subsidies for private health care spending. In the
United States, federal revenue losses due to health care-related tax
preferences amounted to more than 1.5 percent of U.S. GDP in 2005. As a
result, for the U.S., the private share is somewhat overstated and the
public support understated. Health tax preferences also exist in some
other countries, but information about these preferences is not readily
available.
Data for Australia and Japan are from 2004. The United Kingdom uses a
different methodology to collect their data. Data are not available for
the Netherlands after 2002.
[End of figure]
Health care cost containment is expected to continue to pose challenges
in other countries as well as in the U.S. Projections developed by the
Commission of the European Communities show that the management and
control of health care spending will be a critical part of overall
efforts in European Union (EU) countries to ensure progress towards
more sustainable public finances. This is also true outside the EU. For
example, in our recent study of accrual budgeting,[Footnote 10] we
found that Australia projects that health care spending will nearly
double as a share of GDP by 2046-2047. Similarly, the United Kingdom
projects that its health spending will increase from around 7 ½ percent
of GDP in 2005-2006 to around 10 percent of GDP by 2055-2056. New
Zealand projects a rise in the ratio of health spending to GDP of 6.6
percentage points between 2005 and 2050 resulting in health spending of
about 12 percent of GDP.
Results in Brief:
Since the 1980s, many OECD countries have enacted reforms to
politically sensitive and popular entitlement programs such as public
pensions, disability, unemployment, welfare (social assistance), and
health care programs. Since the early 1990s, almost all of the 30 OECD
countries have restructured their pension programs, with a clear trend
toward reduced benefits. Disability benefit reform has also been widely
undertaken, with changes made to reduce costs and achieve better
integration of the disabled into society. Between 1985 and 2000, 14
OECD countries reduced disability benefits, with the Netherlands
undertaking one of the largest reductions as well as policy changes to
promote integration of the disabled. Reforms to unemployment programs,
with an emphasis on cost containment, took place in several countries
in the early 1990s. As in the U.S., growth in spending for public
health programs in many counties continues to be a major concern
despite efforts to constrain it. In some countries entitlement reform
efforts addressed multiple programs simultaneously.
Several kinds of pressures have been cited as prompting entitlement
reform efforts. Many reform efforts began or accelerated in an
environment of economic and fiscal crisis. In the early 1990s, for
example, the Swedish pension reform process took on urgency as Sweden
experienced its worst recession since the 1930s. Long-term concerns
about population aging and economic competitiveness in an age of
globalization also have prompted reforms. Supranational factors, such
as a desire to meet the fiscal criteria required for entry into the
European Monetary Union, have also been cited as motivating reform.
Reform is difficult. Commissions can help, but they are a tool in a
larger process, not a guarantee of reform success.
* Before reform can be enacted and implemented, policymakers and the
public generally need a shared understanding of the size, scope, and
nature of the problem. This understanding can emerge from the work of a
commission, as it did in Sweden's pension reform; or from political
leaders who define and communicate a problem, as in the Netherlands'
disability reform.
* In the three case study reform efforts we reviewed, once reform was
on the agenda proposals were developed by commissions-usually small-
established by governments with a strong commitment to reform. Although
composition and charters varied, leadership was important in these
commissions. Standing commissions can also have a role in reform by
coordinating stakeholders or by monitoring and providing consultations.
Whether ad hoc or standing, commissions or other groups can take
divisive and controversial issues out of the usual political process,
facilitate the consultation and negotiation necessary for coalition
building, and help insulate policymakers from political risks. Reform
has also been undertaken without major efforts to build coalitions and
reach consensus, but to a lesser extent.
* In the reforms we examined, the process did not proceed in a simple
or straightforward manner. Reform processes were generally complex and
often conflict-ridden before they ultimately succeeded in enacting
legislation.
* Each country's reform process was unique, but some re-adjustment or
fine-tuning often occurred over time. In some cases, unexpected
challenges emerged as reforms were implemented that required
adjustments including due to unintended consequences. In other changes
new rounds of reform were enacted as the reform process became
iterative.
* Given that there is uncertainty about the future, some reforms
foresee that re-adjustment will be necessary and put in mechanisms to
do this. Although assuming and structuring an iterative reform process
may be politically necessary, this can undermine public trust in a
program. Automatic mechanisms (or triggers) have been included in some
recent pension reforms including those in Sweden and Germany. These
mechanisms require benefit adjustments without policy changes under
specified demographic or economic conditions.
Many Countries Have Reformed Entitlement Programs and Reform Efforts
Continue:
Since the 1980s, many OECD countries have enacted reforms to
politically sensitive and popular entitlement programs such as public
pensions, disability, unemployment, social welfare (social assistance)
programs, and health care. Like the U.S., many other developed
countries have experienced and expect to continue to experience a rate
of cost growth in their public health programs that exceeds the growth
rates of their economies. Unlike the United States, however, many other
countries have made major changes to their public pension programs in
the last two decades. (For a summary of selected reform efforts, see
app. III.)
In the 1980s, some countries sought to address future financial
shortfalls in their public pension programs by increasing
contributions, but since the early 1990s many pension reform efforts
have sought to reduce future public finance commitments. As shown in
figure 2, spending on public pensions in some other developed countries
is much larger than in the United States. Contribution rates are also
higher. In the U.S., contribution rates for Social Security are 12.4
percent of taxable income. In Sweden and Germany, rates in 2006 were
over 18 percent; in the Netherlands over 25 percent; and in Italy over
30 percent.[Footnote 11] Governments have either undertaken far-
reaching, structural pension reforms or adopted a series of smaller
reforms which, taken together, affect future pension entitlements
substantially. Although Sweden undertook a single major overhaul; more
typically, several rounds of reform took place as in Italy, France,
Germany, and Japan.
Since the early 1990s almost all the 30 OECD countries have made
changes to restructure their public pension programs with a clear trend
toward reduced benefit promises.[Footnote 12] In 16 OECD countries that
implemented significant reform in the last 10 years, OECD estimates
that the benefit promise was reduced by 22 percent.[Footnote 13] Italy,
Sweden, France, Austria, Germany, and Japan reduced replacement rates
for workers with average earnings by at least 6 percent.[Footnote 14]
In assessing future fiscal risk of individual European Union member
countries, a 2007 European Commission report cited pension reforms in
Italy, Sweden, France, Austria, Denmark, and Germany as having
contributed to increased sustainability of public finances.[Footnote 15]
Efforts to reform pensions are continuing. For example, in France the
current government is seeking changes including reductions to pension
benefits for certain civil servants; reform of civil service pensions
was previously attempted in 1995.[Footnote 16] The U.K., which
restructured its public pension program in the 1980s and has made
numerous changes since then, has recently enacted a new major reform
following the work of the Turner Commission.[Footnote 17] Among other
changes, this reform combines an increase in the retirement age with
higher promised benefits to address an emerging problem of poverty
among the elderly. This tension between reducing costs and the need to
avoid increasing the number of elderly poor is reflected in the OECD's
2007 report on the status of pension reforms. This report noted that in
some countries further reforms are needed to ensure fiscal
sustainability while in others previous enacted reforms may have to be
revisited given the risk of old-age poverty for low-income workers.
Non-pension social welfare programs have also been subject to change,
with many reforms reducing benefits.[Footnote 18] For example, in 14 of
20 OECD countries changes in disability policy between 1985 and 2000
included reductions in compensation, with the Netherlands undertaking
the largest reductions.[Footnote 19] The Netherlands also undertook the
largest policy change with respect to increased integration of disabled
people. More recent disability reforms in the Netherlands were cited as
contributing to curbing long-term public spending in the European
Commission's 2006 report assessing the sustainability of public
finances.[Footnote 20] Since the early 1990s, concerns about cost
containment have played a role in reforms of unemployment programs in
countries such as Canada, France (2001), and Germany (2003-2005).
[Footnote 21] Reforms of social assistance (welfare) programs were
enacted in the Netherlands (2004). Efforts to reform other types of
programs continue as well. For example, Sweden is seeking further
reform of its sickness benefit, under which general tax revenue and
employer and employee contributions pay employees for sick
days.[Footnote 22]
In some countries, reforms sought to make changes to related programs
at the same time. For example, the Hartz reforms in Germany integrated
unemployment and social assistance. In recent years the Netherlands has
undertaken reform of unemployment, social assistance, and health care
as well as disability. In Denmark a 2006 comprehensive reform package
known as the "Welfare Agreement" included changes to unemployment
policy, increases in the retirement age, and provisions for increased
investment in education. The Danish government described the Welfare
Agreement as part of a national reform strategy building on two decades
of reforms and was based in part on the work of a 2003 expert
commission.[Footnote 23]
In our 2003 report on strategies to increase labor force participation
among older workers, we studied policies in three countries with high
levels of older worker participation and recent reforms-Japan, Sweden,
and the United Kingdom. All three countries had made changes to their
pension systems. Sweden and the United Kingdom had also tightened
eligibility requirements for disability insurance to reduce its use as
a path to early retirement. Officials in these countries agreed on the
need for comprehensive reforms, e.g., changes to national pension
reforms should be accompanied by reforms in the employer-provided
pension system, in related social insurance programs such as
disability, and in labor market policies.[Footnote 24]
OECD countries have made many reforms to their health care systems
since the 1980s, and reform efforts continue.[Footnote 25] For example,
the Netherlands has recently restructured its health system with a
stated aim of containing health care cost increases.[Footnote 26] We
found no country that has been able to optimize the multiple goals of
cost containment, access, and quality over time. As has been noted by
the Deputy Head of OECD's Health Division, the challenge for OECD
countries today is how to ensure their health systems will be
sustainable given population aging and a rate of health care cost
growth faster than the economy.
As in the United States, structural reform of health systems is highly
controversial, and the reform process may take time. The 2002 Rurup
Commission in Germany was charged with developing recommendations to
ensure sustainability for the social insurance system including
pensions, health care, and long-term care. Two opposing approaches for
health care financing were discussed, but the Commission was unable to
reach consensus on a proposal.[Footnote 27] Reform of the Netherlands
health care system in 2006 incorporated some elements similar to
recommendations made by a commission that concluded its work almost 20
years earlier.
A Variety of Pressures Have Led to Entitlement Reform in Other
Countries:
Several kinds of pressures-economic and fiscal crisis, the demographic
changes of population aging-have been cited as prompting entitlement
reform efforts. In many countries reforms occurred in environments of
economic and fiscal crisis. Long-term concerns about population aging
and economic competitiveness are commonly cited as prompting reforms,
especially of pension programs. Supranational factors such as a desire
to meet the fiscal criteria needed for entry into the European Monetary
Union have also been cited as constituting pressures for reform.
Many reform efforts began or accelerated in an environment of economic
and fiscal crisis.[Footnote 28] In the early 1990s, for example, the
Swedish pension reform process took on urgency as Sweden was
experiencing its worst recession since the 1930s, with growing public
debt and a devaluation of its currency. A Parliamentary Working Group
established by the government in 1991 developed the reform proposal
that was ultimately enacted in 1998. Similarly, the 2002 reform effort
of the German pension system was triggered by an economic downturn that
worsened the program's financial condition and led to the establishment
of the Rurup Commission. Although the Commission reached no consensus
on health care and long-term care, the pension reforms it recommended
were enacted in 2004 and 2007.[Footnote 29] According to experts,
pension reforms in Australia, Canada, Denmark, Finland, Italy, and New
Zealand all took place in an environment of economic and fiscal crisis.
Long-term pressures are also frequently cited as motivating reforms.
Our 2005 report found that demographic as well as fiscal factors
necessitated pension reform in many countries.[Footnote 30] With rising
longevity and declining birthrates, the number of workers for each
retiree is falling in most developed countries, straining the finances
of national pension programs, particularly where contributions from
current workers fund payments to current beneficiaries. Population
aging affects pension programs and projections directly. Swedish and
German government officials attributed pension reforms primarily to
concerns about the programs' long-term fiscal sustainability.
Similarly, according to a Japanese government official, since 1994,
projections of Japan's pension program's financial condition have
necessitated a series of reforms largely due to further aging of
society.[Footnote 31]
Concerns about competitiveness in an era of globalization combined with
current and future population aging are also cited as leading to
entitlement reforms and influencing reform options.[Footnote 32] In the
1980s some pension reforms raised payroll tax contribution rates, but
in the 1990s a desire in some countries to keep non-wage labor costs as
low as possible tilted options toward benefit reductions. For example,
in Germany, avoiding higher payroll tax contribution rates was one
concern in their 1990s reforms. Reforms that included benefit
reductions and eligibility changes in pension and non-pension social
welfare programs, e.g., disability and unemployment, sought to increase
labor force participation rates as one response to competitiveness
concerns. The European Commission has noted a need to increase
employment rates, notably of older workers, as an issue of prime
importance in EU countries. The Commission has further noted that in
countries where a significant decrease in the benefit ratio, i.e.,
average pensions over GDP per worker, is projected, raising employment
rates of older workers is especially important as this could reduce the
risk of possibly inadequate pensions in the future.
Supranational factors are also said to have played a part in bringing
about entitlement reforms. In some European countries, the desire of
some countries to meet fiscal criteria for entry into the European
Monetary Union (EMU)[Footnote 33] has been cited as a factor leading to
reforms. For example, Italy's 1992 pension reform was undertaken as the
country sought to join the EMU. Entitlement reforms during the 1990s in
countries such as Netherlands, France, and Germany have similarly
linked to these countries' efforts to meet the fiscal criteria for EMU
membership. More recently, the European Commission has encouraged its
member countries to adapt their public programs including entitlements
such as pensions and health care to be better able to cope with future
economic challenges as part of the "Lisbon Strategy" to ensure growth
and jobs.[Footnote 34] Denmark's first progress report on its national
reform program, developed as a contribution to the Lisbon Strategy,
focuses on its 2006 Welfare Agreement.
Clearly, these various pressures are not mutually exclusive in Europe
or elsewhere. For example, according to a Japanese government official,
the 1985 pension reform in Japan was introduced as part of a broader
fiscal reform in a context of the end of rapid economic growth, growing
public debt, and the aging of society. Neither are the pressures
sufficient explanations for why some countries enacted reform changes
to increase program sustainability while others did not.[Footnote 35]
As a result, according to OECD, some countries' pension systems
continue to need a major overhaul.
How Reform Proposals Were Developed in Other Countries:
Detailed reform proposals in other countries were generally developed
by commissions or other specially established groups.[Footnote 36]
Proposal development, however, is only one stage in what is often a
long, difficult, and conflict-ridden process.[Footnote 37] Before
reform can be enacted and implemented, policymakers and the public
generally need to have a shared understanding of the size, scope, and
nature of the problem. Next, reform options need to be developed, and
reform packages that key stakeholders can support need to be
negotiated. This stage generally involves dialogue, negotiation, and
coalition building to reach a sufficient degree of consensus across
political parties and groups in society. Special groups outside the
normal political process such as commissions can be used to create a
space where the difficult negotiations needed to reach consensus can
take place. Such groups can mitigate political risk for reform
participants as well as educate the public, creating pressure for
change. Finally, a reform package needs to be enacted and implemented
in succeeding years. Whatever the reform process, leadership is key at
all stages for reform to be enacted and sustained. As one expert has
put it,[Footnote 38] for broad-ranging reform to occur, two conditions
must exist: first, the public must believe that change is needed, and
second, leadership must be able to transform this perception into an
agenda that crystallizes the issues and points to their solution.
Stage 1 of Reform: Framing the Problem:
In reform efforts we examined, various events and actions helped define
the size and scope of the problem. In Sweden a commission helped to put
pension reform on the agenda. A large and diverse commission worked
from 1984 to 1990 without being able to reach consensus on a proposal,
but its analyses are credited with having laid the groundwork for later
reform, raising public awareness of the problem and leading
policymakers to conclude that major structural change was needed. (For
more information on the Swedish pension reform, see app. IV.)
It has been noted that the timing of reform depends on political
leadership-in the first instance leadership to make clear that there is
a crisis. In the Netherlands' long and difficult disability reform
process, actions by political leaders defined the problem and
communicated its urgency. (For more information on the Netherlands'
disability reform, see app. V.)
* The Netherlands disability reform: the "1 million" measure. In the
early 1990s, government efforts to reform the disability program in the
Netherlands and reduce benefits had met with considerable political
opposition. Then-Prime Minister Lubbers made a speech in which he
declared that if the number of disability claimants exceeded 1 million,
he would resign. Analysts, including some who participated in later
reform efforts, cited this measure as having re-framed the public
discussion about disability. Although this number was never reached,
the "1 million" number became a widely accepted symbol of the need for
reform in both expert studies and public discussion. This continued to
be the case as the number of disability claimants rose and fell
throughout the 1990s and into the early 2000s.[Footnote 39]
* Netherlands disability reform: televised hearings by the Buurmeijer
Parliamentary Commission led to a change in the conversation about
disability. In the mid 1990s, the Buurmeijer Commission, a special
parliamentary inquiry chaired by Social Democrat Flip Buurmeijer,
investigated the administration[Footnote 40] of disability by employers
and employee groups. According to experts, this kind of parliamentary
inquiry is rare and considered significant in Dutch politics.[Footnote
41] The work of the Commission took many months and received widespread
public attention through nightly televised hearings. According to
experts, this Commission's work had profound effects on the subsequent
reform process. The Commission's recommendations influenced later
legislation; in the public discussion they raised issues as to whether
the program was meeting its goal of serving the truly needy.
Ultimately, the reform process in the Netherlands became a conversation
about the appropriate roles and responsibilities of government,
employers, and employees in society.
* In Germany Chancellor Schroeder developed a reform agenda he termed
"Agenda 2010" that was aimed at modernizing the German social insurance
system and labor market. The Schroeder government established numerous
commissions as part of this effort, including the Hartz Commission on
unemployment program reform and the Rurup Commission on the sustainable
financing of the social insurance system. (For more information on the
German pension reform, see app. VI.)
Stage 2: Proposal Development:
In the three case study reform efforts we reviewed, once reform was on
the agenda, proposals were developed by commissions established by
governments with a strong commitment to reform. Commissions served as a
venue for negotiation and compromise leading to a reform package.
Commissions that developed proposals were generally small, but their
composition varied, as did their charters. Within the commissions,
leadership was also important. Negotiated behind closed doors, reform
packages were presented publicly prior to legislative enactment and
sometimes changed following participation in the reform process by
other stakeholders. According to OECD, most countries set up ad-hoc
commissions when pension reform processes are being launched.
* Swedish 1991 Parliamentary Working Group.[Footnote 42] In Sweden, a
small parliamentary working group developed the reform package. This
group was chaired by a minister of the center-right government then in
power, who had participated in the earlier commission. The group's
small size and limitation to political leaders were unusual, as was the
exclusion of representatives from employer groups and labor unions. The
major parties were represented. In contrast to the earlier 1984
commission, which had been tasked with making program changes within
the existing framework, the 1991 group had a broad charter for reform.
Between 1991 and 1994, the group negotiated the outlines of a major
structural pension reform, keeping deliberations within the
group.[Footnote 43] This outline became the basis of legislation
enacted in 1998.
* The 2001 Donner Commission. In the Netherlands, the Donner Commission
crafted a disability reform package that included a recommendation for
major structural change. Established by a Minister following many
reform changes in the 1990s, the Commission was composed of respected
public figures from major parties who were able to negotiate for those
parties. Members were not currently active in national politics and not
identified with the disability issue. The commission developed a reform
proposal in meetings closed to the public and made use of an expert
staff. Observers attribute the enactment of reform to the leadership of
both the Minister who established the commission and guided its
proposal through the legislative process and the Commission chair, Piet
Donner.
* The 2002 Rurup Commission. This German commission was chartered with
developing proposals to make the public pension system, the health care
system, and the long-term care social insurance sustainable. The
Commission was established by the Social Democratic government of
Chancellor Gerhard Schroeder as a means to garner support for reform
from both within his party and outside.[Footnote 44] The Commission was
large (26 members), but broke into smaller sub-groups to address the
three programs. While it was unable to reach consensus on health care
and long-term care, the commission did make recommendations for pension
reform. Led by experts, the pension sub-group worked closely with the
Commission chair, Bert Rurup, an academic identified with the Social
Democratic Party then in power. The Commission's recommendation for a
"sustainability factor" in the pension system was enacted in 2004 by
the Social Democrats; its recommendation to raise the retirement age
was enacted in 2007 by a coalition of Christian Democrats and Social
Democrats.
In some reforms, the process of negotiation and proposal development
continued after the commission had concluded its work. For example, the
Donner Commission's disability reform proposal was reviewed by an
institution representing employer groups, labor unions, and the
government. This review, a routine feature in the Dutch legislative
process, led to further changes before legislation was
enacted.[Footnote 45] Similarly, according to the Danish government,
the 2006 Welfare Agreement was based not only on the recommendations of
the Danish Welfare Commission but also on the work of two other groups,
the Danish Globalisation Council and a tripartite council of employer,
employee (e.g., labor unions), and government representatives.
Although all three case study countries used ad hoc commissions,
commissions involved in a reform process can also be standing
institutions. Japan used Pension Councils coordinated by a government
ministry and composed of representatives of employers' groups, labor
unions, academic researchers, and government officials to facilitate
pension reforms during the 1990s.[Footnote 46] Other countries also
have standing commissions.[Footnote 47] Whether ad hoc or standing,
commissions or other specially established groups are commonly used to
develop reform specifics because they can take divisive and
controversial issues out of the usual political process, facilitate
consultation and negotiation, and help to insulate policymakers from
political risks inherent in supporting a reform package.
Although commissions are a frequently used means to develop proposals,
governments have also taken other approaches. In some countries the
government developed reforms on a unilateral basis, i.e., without
seeking consensus through participation by opposition parties or other
stakeholders. Sometimes such efforts succeeded in creating changes; in
other cases, they did not. The 1980s pension reform in the U.K. was
enacted despite opposition and sustained over time with numerous
adjustments.[Footnote 48] However in France a unilateral approach did
not lead to legislative enactment. A 1995 civil service pension reform
effort met with sufficient opposition that it was not enacted. The same
thing happened with a 1994 pension reform effort in Italy, which led to
a change in government.[Footnote 49] In other cases, the public was
involved in the reform process. Canada's 1997 pension reform included
public consultations that highlighted consensus principles for reform.
In Japan's 2000 reform, reform alternatives were presented to the
public in the early stages of discussion. Indeed, a 2000 study noted
that a process involving consultation, negotiation, and public
education has been used for pension reform in highly industrialized
countries in recent years.[Footnote 50]
The Process of Reform Is Complex and Not Sequential:
In reforms we examined, the reform process as it unfolded did not
proceed in a simple or straightforward manner from problem definition
to negotiation and consensus-building to enactment. Rather, the reform
process at some points seemed more like a zigzag or "two steps forward,
one step back" than a straight line.
* An important provision of the 1997/1999 pension reform by the
Christian Democrats in Germany was revoked by the successor Social
Democratic government. This same government subsequently undertook a
structural reform in 2001 and in 2002 established the Rurup Commission
to address unexpected shortfalls in pension financing.
* In Sweden, following the work of the 1991 group, a second
Parliamentary Working Group worked out legislative details of the
reform between 1994 and 1998 while leaders of the Social Democratic
party worked to persuade opponents within their party on the need for
and contours of reform.
Similarly, the activities of consultation, negotiation, and public
education may occur at several points in the process, with commissions
performing multiple roles. For example, the Danish Welfare Commission
both developed recommendations used in the legislative process and
educated the public about the need for change. The 2002 Rurup
Commission's recommendation to raise the retirement age is said to have
led to a controversial public debate, with this change enacted in 2007.
Reform is difficult. Commissions can help, but they are a tool in a
larger process, not a guarantee of reform success. For reform changes
to be enacted and sustained, a sufficient degree of consensus across
the major parties and acceptance by the general public of the need for
change must be achieved. Leadership is needed to bring this about. In
Sweden and Germany, formal and informal cross-party cooperation was key
in moving reform forward; in the Netherlands, disability reforms were
enacted by various coalition governments. Consultation took place with
key stakeholders either formally or informally.[Footnote 51] As experts
have noted, the tension is to build a broad coalition to assure the
permanency of the reform, while preserving the main policy initiatives
sought in the reform process.[Footnote 52]
The Reform Process May Continue Following Enactment of Legislation:
Each country's reform process was unique, but some re-adjustment or
fine-tuning often occurred over time. In some cases adjustments were
needed to address emerging implementation challenges. In other cases
change included new rounds of reform as the reform process became
iterative. In recent pension reforms, a trend has emerged toward
including automatic mechanisms, or triggers, which aim at insulating
reforms from policy change. These types of mechanisms are structured to
reduce benefits without legislative action under specified
circumstances, e.g., if demographic or economic trends prove
unexpectedly unfavorable.
As reforms are implemented, unexpected challenges may emerge that call
for fine-tuning or other adjustments including due to unintended
consequences.
* In Sweden, following the implementation of pension reform, changes to
individual account administration have been under discussion. Since
account inception, the number of Swedes making active investment
choices has dropped, with more people routing their money into the
government default option. A government committee has recommended
limiting investment options from over 700 accounts to around 200, and
converting the default fund into a fund that adjusts based on an
individual's age. To date, no changes have been enacted.
* In the Netherlands, one of the disability reforms sought to provide
employers with incentives to limit the number of their employees
claiming disability. However, some experts said that in response
employers began to seek ways to identify prospective employees who
posed a risk of becoming sick or disabled. Legislation was then passed
preventing health screenings in the hiring process.
* The United Kingdom experienced substantial difficulties in the 1980s
when it implemented its pension reform, in part, by providing too
little public education and relying on its already existing regulatory
system, which proved to be inadequate. In what has become known as the
'mis-selling' controversy, high-pressure sales tactics were used to
persuade individuals, especially older workers, to take up individual
accounts when they would more likely have been better off retaining
their occupation-based pensions.
As we noted in our report on other countries' pension reforms,[Footnote
53] the extent to which new provisions are implemented, administered,
and explained to the public may affect the outcome of the reform.
In some cases the need to revisit is anticipated and initial
legislation provides for some form of periodic re-visiting under
specified circumstances. For example, Germany and Japan established
"soft" triggers as part of their pension reforms. The 2001 German
reform included a requirement that if projections did not meet
specified thresholds for maximum expected contribution rates or minimum
replacement rates in the future, government action would need to be
taken. Triggered in 2002, this mechanism led to the establishment of
the Rurup Commission. A similar mechanism in Japan requiring an
examination every 5 years of its pension program's sustainability led
to additional rounds of reform.[Footnote 54] Other countries also have
established institutions to monitor pension fiscal sustainability and
in some cases are tasked with recommending adjustments as appropriate.
Reform processes can be described as one-time "big bang" reforms as in
Sweden; more commonly, reforms are iterative as in the Netherlands
disability reform or German pension reform. In our work on other
countries' pension reforms, we noted that, in almost every country we
studied, debate continued about alternatives for additional reform
measures even after initial changes were enacted. It is clearly not a
process that ends with one reform, and it often requires more than one
type of reform. An iterative process can be understood as reflecting
the difficulties posed by reform of popular and politically sensitive
programs.
Some have pointed out that frequent changes may have a downside. Some
officials we spoke with noted that although an iterative process may be
politically necessary, constant re-opening of issues is not ideal. In
some cases where several rounds of reforms occurred, frequent changes
to pension systems created public mistrust. For example, in Japan
noncompliance with the system became an issue in the public debate in
the early 2000s following a series of pension reforms driven by rapid
population aging. Swedish officials said that achieving a consensus on
a reform that would be politically sustainable was one reason that the
reform process took so long.
Because reform is so difficult, a major goal is to have a reform that
will last. Given that there is uncertainty about the future, some
pension reforms include mechanisms to reduce benefits (and in some
cases also increase revenues) without intervention by policymakers. In
2001 as part of its reform changes Sweden enacted an automatic
balancing mechanism to adjust benefits if other reform changes prove
insufficient to keep the pension program in fiscal balance.[Footnote
55] The automatic balance mechanism is a kind of "hard trigger" that
comes into play under specified circumstances.[Footnote 56] Following
Sweden's lead, several other countries have adopted similar types of
mechanisms, and these mechanisms are considered an emerging trend in
pension reform.[Footnote 57] Germany's 2004 pension reform included a
"sustainability factor" as recommended by the Rurup Commission. The
sustainability factor automatically adjusts benefits based on the
number of workers to beneficiaries. Pension reforms in Japan,
Italy,[Footnote 58] Canada and other countries have also included
automatic adjustment mechanisms. An aim of this type of mechanism is to
insulate reforms from future legislative changes, thereby increasing
trust in program sustainability and compliance with the system. In
addition, experts have noted that such mechanisms could mitigate
political risk for policymakers in the event reductions are triggered.
The effects of such mechanisms generally remain to be seen.[Footnote
59] In Japan, a mechanism adopted in 2004 to limit increases in
contribution rates has been triggered. According to one expert, the
result has been accepted by the public following a painful public
debate.
Experts have expressed differing views concerning these types of
mechanisms as used in pension reforms. Some have expressed the view
that automatic mechanisms may be the best approach to slowing cost
growth in the entitlement programs driving the long-term fiscal
challenge. Others have noted that mechanisms could be subject to
erosion should they be triggered and the required benefit reductions
prove politically unacceptable.[Footnote 60] Those who support the
concept of automatic mechanisms note that in this event legislators
always have the option of suspending the mechanism and are unlikely to
raise benefits above the levels that would have been the case had the
mechanism never been activated. In any case, triggers may make it more
difficult to ignore that a problem exists.[Footnote 61]
Implications for the United States:
The experiences of other countries suggest that while reform is
difficult, it is also possible. Countries more advanced in population
aging and facing greater demographic challenges than ours have
undertaken reforms of major entitlement programs. In many countries,
reform occurred despite political processes that made it difficult.
Consensus had to be built in coalition governments, and leaders had to
work across parties to achieve a broad consensus for reform.
Nonetheless, politically sensitive and popular programs such as public
pensions were reformed including those which were (and are) more
generous to individuals and constituted a larger share of their economy
than is the case in the U.S.
The experiences of other countries also underline that for reform to be
enacted and sustained, it needs broad-based support that reaches across
parties and groups. In the U.S. this means that reform will need to be
done on a broad bipartisan basis. For reform to be sustained, a broad
public consensus must be reached on the need for reform.
Other countries' reform processes show that at all points in the
process leadership will be needed to create and sustain consensus. In
other countries leaders undertook many actions to begin the reform
process and move it forward to enactment and implementation. Leaders
framed the problem in new ways, persuaded the public and other
policymakers that reform was necessary and urgent, established
commissions to develop reform packages, and worked to build coalitions
to support reform. Throughout the process, leaders had to negotiate
tensions between the need to build broad coalitions while maintaining
reform goals. In the U.S., presidential leadership will be key if
reform is to happen.
As in the 1983 reform of Social Security, other countries' experiences
show that commissions can be a useful tool. Commissions in other
countries moved reform forward by educating the public and also
provided a forum for developing reform packages. Commissions we studied
often met out of the public eye, thereby facilitating discussions and
negotiations that could then be supported by all those involved.
Establishing a commission, however, does not guarantee that a reform
package that can gain consensus will be developed. While commissions
can help, they are not a substitute for leadership or political will.
Other countries' experiences show that for reform to occur, certain
elements must fall into place. For reform to occur and be sustained,
the public and policymakers in other countries were ultimately
persuaded that reform was necessary and urgent. Coalitions were built
to support reform, and a package that could gain support and a broad
consensus was negotiated and enacted. For reforms to be enacted and be
sustained by future governments, the involvement of major stakeholders
whose support was necessary for the success of the reform was needed,
whether through membership in the commission or through some other
means. How this happened differed from country to country-each
country's process was unique. Taken as a whole, reform processes were
generally complex and often conflict-ridden before they ultimately
succeeded in enacting legislation.
One conclusion is that it is hard to know-before legislation is
actually enacted-how close any given process is to reaching its
culmination. In the U.S., past commissions and other public discussions
on entitlement reform have laid groundwork for reform even while
appearing to "fail," e.g., no reform was enacted. For Social Security
reform in this country, options have been developed, and policymakers
have had the opportunity to learn from past initiatives that did not
gain consensus. Public debate has been ongoing for some time, with
considerable and growing public awareness that Social Security and
Medicare are unsustainable. While no one can know what needs to happen
next, given leadership committed to reform, it is possible that our
reform process could be further along than it may seem.
We are sending copies of this report to interested parties. Copies will
also be made available to others upon request. In addition, the report
will be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov]. This report was done under the direction of Susan
J. Irving, Director of Federal Budget Analysis, Strategic Issues, who
may be reached at (202) 512-9142 if you have any questions about this
report. Contact points for our Offices of Congressional Relations or
Public Affairs may be found on the last page of this report. GAO staff
who made major contributions to this report are listed on appendix VII.
Signed by:
David M. Walker:
Comptroller General of the United States:
[End of section]
Appendix I: Scope and Methodology:
To develop criteria for "major entitlement reforms" and to select case
studies and reform efforts for further review, we conducted a
literature review and consulted with experts.
We reviewed GAO reports on other countries' entitlement reforms for
pension programs, labor market reforms, and disability reforms; OECD
reports on pension reforms, disability reforms, and long-term care
reforms; the WHO Health Care in Transition country profiles;
International Monetary Fund country profiles and studies of health care
reforms by the International Network Health Policy & Reform, which
monitors health policy trends and developments in 20 industrialized
countries. We reviewed materials from a 2007 OECD conference of budget
officials from several OECD countries involved in budgeting for
entitlement programs and concerned about the future cost implications
of these programs.
* We reviewed papers from a 2006 conference on entitlement reforms and
reform process in European countries including reforms to pensions,
unemployment, and health care programs.
* We analyzed OECD information on pension reforms to identify countries
that had made the largest reductions in benefit promises. We reviewed
the 2005/06 and 2007 sustainability assessments made by the European
Commission of EU for the sustainability of public finances in those
countries, focusing on countries where risk assessments indicated that
entitlement reforms had improved sustainability.
* We consulted with the staff responsible for the GAO reports on
international entitlement reform and with OECD officials responsible
for pension reform and health care. We also consulted with an OECD
official who had convened a conference on budgeting for entitlement
reforms and with an academic expert on budgeting and public policy.
Although OECD countries have made many reforms to their health care
systems since the 1980s, and reform efforts continue, we found no
country that has been able to optimize the multiple goals of cost
containment, access, and quality over time. Some countries have already
undertaken national pension reform efforts to address demographic
changes similar to those occurring in the United States, and in a
previously issued report we drew lessons from their experiences.
Based on these reviews and consultations we narrowed our focus to
highly developed, relatively affluent OECD countries on the grounds
that these countries were more likely to have similar types of
political pressures to the U.S., but even more daunting long-term
challenges and demographic changes. We further limited our review to
reforms enacted within the last 10 years that had aimed at slowing cost
growth and increasing fiscal sustainability. Finally, we selected the
following reform efforts for further review: pension reform in Sweden,
Germany, Japan, Italy, France, U.K., and Canada; disability reform in
the Netherlands; and reform of social programs in Denmark.
To understand how reform proposals were developed and to understand the
dynamics of entitlement reform, we reviewed political science
literature on reform process in various countries including theoretical
studies of the stages of reform. We also reviewed studies from experts
including researchers at the Center for Strategic & International
Studies (CSIS), the Urban Institute, the International Labour Office
(ILO), and the Center for Retirement Research.
To analyze how reform proposals were developed and to supplement our
analysis of the other objectives, we selected three reform efforts for
more in-depth review. In selecting reform efforts we took into account
information from the literature review and recommendations by the
experts we consulted. We selected reform efforts representing a range
of approaches to reform process including whether any mechanisms for
revisiting changes or triggers were built into the reform. Each of the
reform efforts selected had included one or more commissions or other
specially established groups.
* Sweden's pension reform was an example of a major reform that has
been sustained without further structural change following a long
process.
* Germany's pension reform was an example of an iterative process over
an extended period of time and also an example of a process that
included a trigger requiring actions under specified circumstances in
its reforms.
* The Netherlands' disability reform was an example of an iterative
process of reform of a non-pension program and as an example of
entitlement reform in a country that has undertaken reform of multiple
entitlements in recent years.
In these countries we interviewed government officials knowledgeable
about the reform process, at least one commission participant or
commission staffer, and independent experts.
We did not evaluate the effect of reforms on beneficiaries or on
program effectiveness. Consideration of any entitlement reform process
should not be taken to imply approval of the specifics of any given
reform. We limited our review to documents available in English.
[End of section]
Appendix II: Summary of Selected U.S. Commissions:
Greenspan Social Security 1983:
Statutory basis? No; Executive order but agreement by the Congress;
Imminent crisis or other action-forcing event? Yes;
Presidential leadership and commitment to success of effort? Yes;
Within the general charter was scope broad or restricted (and how)?
Broad;
Number of commissioners; (No. of current elected federal officials/No.
of others): 15 (7/8); 4 Senators, 3 House Representatives, 8 non-
elected (included 2 former Members of Congress; also insurance, labor,
business representatives);
Appointments by both President and Congress? Yes; 5 by President, 5 by
Senate, and 5 by House;
Bipartisan? Yes;
Co-chairs? No;
Open/transparent process including public hearings? Yes; but found way
to do smaller conversations;
Commission resulted in report? (month, year issued): Yes; (Jan. 1983);
Report set forth specific, actionable recommendations? Yes;
Under establishment of Commission was action required by the President
or Congress? Or were there other action-forcing provisions? No;
Did President/Congress take required action or some other responsive
action? Yes;
Other relevant information: [Empty].
Kerrey-Danforth Bipartisan Commission on Entitlement and Tax Reform
1994:
Statutory basis? No; Executive order;
Imminent crisis or other action-forcing event? No;
Presidential leadership and commitment to success of effort?
Within the general charter was scope broad or restricted (and how)?
Broad; entitlement spending and tax reform;
Number of commissioners; (No. of current elected federal officials/No.
of others): 32 (22/10);
Appointments by both President and Congress? No; presidential
appointments only;
Bipartisan? Yes; of the 22 Members of Congress, 11 Democrats and 11
Republicans;
Co-chairs? Yes, functionally; technically Chair and Vice-Chair;
Open/transparent process including public hearings? Yes; all meetings
and hearings were televised on C-SPAN. All commission documents,
transcripts and reports made public on a CD;
Commission resulted in report? (month, year issued): Yes; failed to
reach consensus on specific recommendations; (Jan. 1995);
Report set forth specific, actionable recommendations? No; but
recommended 5 broad principles for crafting "solutions to our fiscal
problems";
Under establishment of Commission was action required by the President
or Congress? Or were there other action-forcing provisions? No;
Did President/Congress take required action or some other responsive
action? No;
Other relevant information: Interim report widely respected; source for
much of what is said today.
Breaux-Thomas Commission on the Future of Medicare 1998:
Statutory basis? Yes; Balanced Budget Act 1997;
Imminent crisis or other action-forcing event? No;
Presidential leadership and commitment to success of effort? No;
President strongly disagreed with proposed recommendations;
Within the general charter was scope broad or restricted (and how)?
Broad;
Number of commissioners; (No. of current elected federal officials/No.
of others): 17 (9/8);
Appointments by both President and Congress? Yes; 1 of 17 (Chair) by
both President and Congress; 4 others by President; others by
congressional leadership (Republicans appointed 4 each house and
Democrats 2 each house) = 8 by each party;
Bipartisan? Yes;
Co-chairs? Yes, functionally; technically Breaux = Chair; Thomas =
"Administrative Chair";
Open/transparent process including public hearings? Yes;
Commission resulted in report? (month, year issued): No; proposed
recommendations failed to gain required 11 votes;
Report set forth specific, actionable recommendations? N/A;
Under establishment of Commission was action required by the President
or Congress? Or were there other action-forcing provisions? No;
Did President/Congress take required action or some other responsive
action? N/A;
Other relevant information: Outlook for Medicare appeared to improve
while Commission met.
Bush Committee to Strengthen Social Security 2001:
Statutory basis? No; Executive order;
Imminent crisis or other action-forcing event? No;
Presidential leadership and commitment to success of effort? Yes;
Within the general charter was scope broad or restricted (and how)?
Restricted; had to include individual accounts;
Number of commissioners; (No. of current elected federal officials/No.
of others): 16 (0/16); Included 3 former Members of Congress;
Appointments by both President and Congress? No; presidential
appointments only;
Bipartisan? Yes; 8 Republicans and 8 Democrats;
Co-chairs? Yes;
Open/transparent process including public hearings? Yes;
Commission resulted in report? (month, year issued): Yes; (Dec. 2001);
Report set forth specific, actionable recommendations? Report set forth
3 reform models;
Under establishment of Commission was action required by the President
or Congress? Or were there other action-forcing provisions? No;
Did President/Congress take required action or some other responsive
action? No;
Other relevant information: Limit on scope and conditions for
membership perceived as having negative impact on acceptance of
analyses-even those not related to specific individual account issue;
Democrats appointed not viewed as representative of party point of
view.
9/11 Commission 2002:
Statutory basis? Yes; Pub. L. No.107-306;
Imminent crisis or other action-forcing event? Yes;
Presidential leadership and commitment to success of effort? Partial;
Within the general charter was scope broad or restricted (and how)?
Broad;
Number of commissioners; (No. of current elected federal officials/No.
of others): 10 (0/10);
Appointments by both President and Congress? Yes; 1 by President
(Chair); 1 by Senate Minority Leader with House Minority Leader consult
(Vice-Chair); 2 each by Senate Majority Leader and House Speaker; 2
each by Senate and House Minority Leaders;
Bipartisan? Yes;
Co-chairs? Yes, functionally; technically Chair and Vice-Chair;
Open/transparent process including public hearings? Yes;
Commission resulted in report? (month, year issued): Yes; (July 2004);
Report set forth specific, actionable recommendations? Yes;
Under establishment of Commission was action required by the President
or Congress? Or were there other action-forcing provisions? No;
recommended actions to both but not required;
Did President/Congress take required action or some other responsive
action? Yes - many were enacted;
Other relevant information: [Empty].
Mack-Breaux Tax Reform 2005:
Statutory basis? No; Executive order;
Imminent crisis or other action-forcing event? No.
Presidential leadership and commitment to success of effort? No;
Within the general charter was scope broad or restricted (and how)?
Restricted; required revenue neutrality and keeping incentives for
homeownership and charitable giving, and encouraging savings; required
to consider equity and simplicity too;
Number of commissioners; (No. of current elected federal officials/No.
of others): 9 (0/9); Chair and Vice-Chair were former Senators; 1
former House Representative on panel; also included 4 professors and 2
"tax practitioners";
Appointments by both President and Congress? No; presidential
appointments only.
Bipartisan? Yes;
Co-chairs? Yes;
Open/transparent process including public hearings? Yes;
Commission resulted in report? (month, year issued): Yes; (Nov. 2005);
Report set forth specific, actionable recommendations? Yes;
Under establishment of Commission was action required by the President
or Congress? Or were there other action-forcing provisions? No;
recommended actions to President but not required;
Did President/Congress take required action or some other responsive
action? No;
Other relevant information: Commission viewed report as starting point
for congressional consideration of tax reform; no action yet.
Source: GAO analysis.
[End of table]
[End of section]
Appendix III: Summary of Selected Reform Efforts:
Most recent reform:
Sweden: Pension reform: Passed in 1994, details passed in 1998;
implemented in 1999; automatic stabilizer in 2001;
Japan: Pension reform: 2004;
Germany: Pension reform: 2004; Retirement age: 2007;
Netherlands: Disability reform: 2005;
Canada: Pension reform: 1998;
United Kingdom: Pension reform: 2007;
Italy: Pension reform: 2004;
France: Pension reform: 2003.
Pressure(s) for reform:
Sweden: Aging population; predictions that the system was unsustainable
in the mid-1980s; a recession in the early 1990s;
Japan: Population aging; statutory requirements for periodic
monitoring;
Germany: Population aging; high non-wage labor costs; economic
downturn;
Netherlands: High number of beneficiaries; population aging;
Canada: Primarily financial pressures:
* declining economic conditions;
* declining demographic conditions;
* increase in disability benefit use;
* benefit increases from the 1970s; also, in 1993, pension assets were
not enough to pay benefits (benefits funded by collecting provinces'
debt to pension plan);
United Kingdom: Growing levels of pensioner poverty;
Italy: Population aging; economic crisis in early 1990s; meeting
Maastricht criteria for entry into European Monetary Union;
France: Deficit in the pension system and unfavorable projections for
the future solvency of the system.
Reform history:
Sweden: Process that led to reform began in 1984;
Japan: Beginning in 1985, pensions have been reformed multiple times
due to population aging and lower economic growth rates with the goal
of achieving fiscal sustainability;
Germany: Incremental reforms began to be implemented in 1992 under the
Kohl government;
Netherlands: Many reforms and changes to the system since the 1980s;
Canada: Pension reform in Canada is difficult, and thus uncommon,
because it requires consent from the provinces;
United Kingdom: Pension system changes had been common in the UK and
have been seen as unilaterally driven by government in power; recent
reform included public outreach;
Italy: Reform efforts began in 1992 and continued through the decade.
These efforts were met with controversy, including strikes and
protests;
France: Reform of public pensions in 1993 stemmed from discussions in
the mid-1980s. Attempt at reform of civil service pensions in 1995 was
met with strikes and ultimately failed. 2003 reform is seen as the
beginning of a series of reforms.
Commission(s) or other institutional prompts:
Sweden: Swedish government appointed a commission to study pension
system in 1984, which met through 1990; a parliamentary working group
met from 1991 to 1994 to create legislation; another parliamentary
group focusing on implementation details met from 1994 to 1998;
Japan: National Pension Council: a standing government commission;
Germany: German government appointed a commission in 2002 following an
economic downturn and financial crisis in the public pension system-
and a 2001 law required the government to take action when projections
were unfavorable;
Netherlands: Parliamentary committee investigated disability
administration in 1993 leading to greater public awareness; the
government appointed a commission in 2000; its recommendations were
deliberated by a standing body with representatives from government,
employers, and employee groups; reform passed in 2005;
Canada: No commission or special group was used. Reform was based upon
negotiations with Ministry of Finance and provincial ministers along
with information collected from town hall meetings;
United Kingdom: An independent government commission;
Italy: Italy has a standing commission to monitor expenditures. This
commission is not seen as having prompted 2004 reform;
France: Pension Advisory Council was created in 2000. This is a
standing body.
Composition of commission/special group(s):
Sweden: 1984 commission included experts, political party
representatives, unions, business organizations, and government
officials. The 1991 group had 8 members representing the parties in
power; 6 of them were Parliament Members. The 1994 group had 8 members
from the parties that agreed to the reform; 4 were current Parliament
Members, 1 was a former Member;
Japan: Government assessment begins with pension experts from Ministry
of Health and Welfare. They consult with National Pension Council
(which includes business groups, trade unions, and pension experts)
along with political parties;
Germany: Pension reform was handled by a subset of 26-member
commission; this commission included academic experts, officials from
lower levels of government, employer and union representatives;
Parameters of commission/study group:
Sweden: 1984 commission was tasked with examining the challenges of the
old system, and making recommendations within the old system's
framework. The 1991 group was tasked with creating legislative
proposals for a system that is fiscally and politically sustainable in
the long term;
Japan: Standing commission required to provide input to Ministry of
Health and Welfare's assessment of financial outlook every 5 years and
assist in developing reforms if necessary;
Germany: The Rurup Commission was tasked to make recommendations on
ways to achieve sustainability in the pension system, within the
parameters established in 2001-payroll tax at no more than 20% up to
2020 and no more than 22% to 2030; replacement at no less than 67% of
average net earnings;
Netherlands: 1993 committee: Members of Parliament from multiple
parties; 2000 commission: Five representatives of large political
parties (not from parliament), one independent expert, and one civil
servant;
Canada: N/A;
United Kingdom: Three members and a small secretariat. One member from
private sector, one from unions, one academic expert;
Italy: Not applicable for this reform;
France: Includes representation from government, labor, business, and
elderly interest groups.
Netherlands: Goal of recent reform was to decrease share of population
receiving disability-to increase size of labor force;
Canada: N/A;
United Kingdom: Commission charged with looking at level of pensions,
level of pension savings, level of other savings among pensioners, and
to make recommendations based upon these findings; commission produced
three reports;
Italy: Not applicable for this reform;
France: Purpose of council is to monitor French retirement and put
forth recommendations based upon negotiations with involved partners.
Source: GAO.
[End of table]
[End of section]
Appendix IV: Pension Reform in Sweden:
[End of section]
Reform Overview: Significance of the Reform:
Sweden's pension reform, a complete overhaul enacted in 1998,
restructured a pension system that was the hallmark of the Swedish
social welfare system and a result of political conflict in the 1950s.
The reform's novelty is evident in its employment of a notional defined
contribution approach to the pay-as-you-go benefit component and an
automatic balance mechanism.[Footnote 62] In addition to the
substantive reform, the process that facilitated the changes is also
noteworthy, namely the lengthy period of deliberations that ultimately
reconciled disparate interests and gathered strong support in
Parliament.
As a result of the reforms, Sweden's pension system changed from a
traditional pay-as-you-go defined benefit plan, like the U.S. Social
Security program, to a system where participants' benefits are more
closely related to their contributions.[Footnote 63] Like its
predecessor, the new system uses pay-as-you-go financing; however, the
former benefit scheme was replaced with notional and individual
accounts whose balances are based primarily on work-related
contributions, and a guaranteed minimum pension for low-income
individuals (see table 1).[Footnote 64] Credits for child care,
education, military service, and sickness also contribute to an
individual's pension rights. The system relies on a reserve fund for
financing during periods of economic or demographic changes that cause
increased pension liabilities.[Footnote 65] If liabilities exceed the
reserve fund, a balancing mechanism will temporarily adjust indexation
of benefits and interest rates on the notional accounts, thus
preventing contribution rate increases.
Table 1: Sweden's Public Pension System, Pre-and Post-Reform:
Benefits and Structure:
Pre-reform:
* Flat rate universal benefit, established in 1913;
* Earnings-related benefit, established in 1960. Payouts calculated
based on an individual's 15 highest earning years. Supplements were
available for low-income individuals;
Current system:
* Notional accounts æ payouts that are based on credits from payroll
contributions and credits from eligible nonwork periods;
* Mandatory individual accounts;
* Guaranteed minimum benefit for low-income individuals.
Financing:
Pre-reform:
* Approximately 19 percent payroll tax on employers;
* General tax revenue supported the universal benefit;
Current system:
* Employers and employees pay equally into an 18.5 percent tax on
earnings; 16 percent goes to notional accounts, and 2.5 percent goes to
individual accounts;
* General tax revenue supports the guaranteed minimum benefit and
nonwork credits for notional accounts.
Source: GAO analysis.
Note: Employees only pay on earnings up to the pension ceiling, while
employers pay on all earnings.
[End of table]
Origins of Reform:
By the mid-1980s, the actuarial predictions showed that the old system
was financially unsustainable. Accordingly, Swedes were losing faith in
the system. Demographic changes, increased longevity and an aging
population soon eligible for benefits, threatened to strain the system.
In 1980, 21.9 percent of Swedes were age 60 or older, compared with
15.6 percent in the U.S.
Other considerations also played a role in reform. The benefit formula
had an "inequitable and unsystematic relationship" between benefits and
contributions according to one government official, implying that
decreased work did not necessarily mean reduced benefits. Furthermore,
the income ceiling for benefits was indexed to consumer prices, meaning
that as more people earned wages above the ceiling, the earnings-
related benefit would eventually become a flat rate.
Even before the reform effort of the 1990s, the contributory pension
system had been a focus for political conflict. The system, which was
enacted by a Social Democrat Parliament in 1960, was only gradually
accepted by non-Socialist parties.[Footnote 66] After an oil crisis in
1979, the non-Socialist Parliament unilaterally attempted to remove
energy prices from the pension benefit indexation formula. The effort
failed and the Social Democrats campaigned on the issue and regained
control of Parliament in 1982. Once in power, the Social Democrats
changed the index formula but did not initiate other reforms, causing
non-Socialists to believe the Social Democrats abandoned their reform
intentions.
The Reform Process:
In 1984 the Social Democratic government appointed a pension committee
tasked with examining the challenges of the system, and proposing
reforms within the existing framework.[Footnote 67] The committee's
membership was typical of a Swedish Parliamentary commission: it was
large and included representatives from political parties, unions,
employers, experts, and government. The committee's deliberations
lasted six years, culminating in a report that proposed changes to
survivors' pensions, but not an overall reform (see fig. 4). According
to one expert, the report said the financial problems would not peak
until about 2010-2015 and therefore reform was not an immediate need.
By the early 1990s, Sweden experienced its most serious recession since
the 1930s, marked by an increased deficit, high unemployment, near
failure of several major banks, and a devaluation of the currency.
Starting in 1990, Sweden's budget surplus became a deficit, leading to
a dramatic escalation in government debt. The recession served as the
final spur for pension reform, making the issue a high priority in 1991
for the newly elected center-right coalition in Parliament, who
appointed a working group on pensions.
This group was tasked with producing proposals for a new pension system
that would be financially solvent and broadly supported. Unlike the
1984 committee, the working group was small, consisting of two Social
Democrats and a representative from each of the six other parties in
Parliament at the time; everyone but the chairman and one of the
working group members were Members of Parliament.[Footnote 68] The
small size of the group was the result of a decision by the chairman,
who also wrote the group's directives. The chairman was the Minister of
Social Affairs at the time, and a former member of the 1984 committee.
According to a government official, it is unusual for a minister to
chair a working group, but it showed the importance of the reform. The
exclusion of interest groups such as labor unions was justified by the
work of the 1984 committee, who laid the reform's foundation by
highlighting financial problems, leaving reform negotiations to the
politicians, according to an expert. Despite their lack of direct
participation, interest groups had close ties to the parties and
participated in occasional meetings of special groups known as
reference groups.
Prior to negotiating specific compromises, the working group came to an
agreement on broad principles, according to a group member. To prevent
the endless introduction of new debates, members agreed to reach
consensus before they consulted with nonmembers. An expert and a
working group member described the members as "social engineers" who
possessed the leadership, knowledge, and personal dynamics necessary to
produce legislation. During negotiations, both the majority coalition
and the Social Democrat opposition adjusted their preferred reform
models in exchange for preservation of their overall goals. For
example, the Social Democrats agreed to incorporate individual accounts
into the systemæan inclusion important to conservativesæbut Social
Democrats advanced their views by insisting that the accounts be kept
to a relatively small portion, 2.5 percent, of benefits. The strength
of the Social Democrats as the opposition party permitted
responsibility for legislative outcomes to be diffused between both the
majority and the opposition, according to an academic expert; each
party could cite the other as the force necessitating unpopular
concessions. The deliberations resulted in a consensus and a proposal
outlining principles for reform.
A majority of Parliament æfive parties representing about 85 percent of
the electorateæpassed the principles in 1994 just prior to an election.
However, the legislation did not contain specific legal provisions and
therefore only served as a guide for future legislation. Due to the
relatively early agreement on the reform principles and small size of
the group, the opportunity for interest groups and politicians to
muster strong opposition or support was limited, according to a working
group member. Reform debates were not public, a condition that prompted
some criticism of the process.
To formulate the details of the reform, a second working group,
composed of representatives from the five parties who supported the
reform, convened later that year following the return of the Social
Democrats to a majority in Parliament.[Footnote 69] As with the 1991
working group, there was little public discussion of the 1994 group's
deliberations. During this period, however, Social Democrat leaders
faced opposition to the reforms within their party, as some members
believed the reforms veered too far from the existing system the Social
Democrats created. Party officials had to persuade members to support
the reforms, holding lengthy discussions. Additionally, it took time to
work with the Ministry of Finance, which did not have a direct role in
the proposal's formation. During these negotiations, Sweden's National
Insurance Boardæthe government agency responsible for administering
pensions at the timeæbegan preparing for implementing the reforms. In
June 1998, Parliament passed the finalized legislation. One group
member told us that it was significant that the bulk of the reform was
accomplished all at once. Unlike incremental reforms, one set of
changes helps to reduce the public's uncertainty and ensure the trust
and security that is vital for social insurance schemes, according to
one expert. To introduce the reforms to the public, the government
launched a three year information campaign, which included media
outreach and mailings of individual benefit projections. Payments under
the new system began with retirees born after 1937, who receive
benefits from both the old and new systems.[Footnote 70]
Post-Reform Implementation and Adjustments:
Although the bulk of the reform was enacted in 1998, the government
faced challenges with implementation and ensuring the political
insulation and fiscal stability of the system. Because the new system
is still influenced by demographics, it was necessary to introduce an
automatic balancing mechanism to assure the system's stability, a part
of the system discussed in the 1990s, but not enacted until technical
details were resolved in legislation passed in 2001. The mechanism was
intended to help protect the system from political recalibration during
system imbalances by automatically activating when necessary and
therefore minimizing intervention from Parliament.
The Swedish government also sought to refine the administration of
individual accounts. A committee was established in 2004 to evaluate
program guidance, clarity of investment options, system costs, and the
possibility of including life annuities in addition to the unit-linked
funds already being offered. The committee report showed that the
number of Swedes making active investment choices has dropped since the
accounts' inception, with more people routing their money into the
default option offered by the government. In addition to proposing
steps to reduce administrative costs, the committee recommended
limiting investment options from over 700 accounts to around 200, and
converting the default fund into a fund that adjusts based on an
individual's age. To date, the government has not implemented any
changes.[Footnote 71]
Legacy of the Reform:
The reforms enacted in Sweden highlight the importance of coupling
universally acknowledged problem definitions with knowledgeable
leadership in order to pass reform. Specifically, the analysis
performed by the 1984 pension committee, a large group with broad
membership, set the stage for the legislative negotiations in the
1990s, according to an expert. Economic conditions and eroded
confidence in the old pension system helped activate those
deliberations in the 1990s. The 1991 working group, which had the
necessary social engineering skills and knowledge, used the projections
of program fiscal unsustainability to craft a major structural reform
that was agreeable to a strong majority of Parliament. Although also a
criticism, the autonomy of the 1991 working group and its small size
decreased the potential opportunities for derailing the legislation and
helped build consensus across party lines, according to one expert.
The result of the two decade and multi tier process was a complete
reconstruction of the pension system, designed with the aim of
insulating it from the temptation of constant political fine-tuning. As
the reforms are gradually phased in, the Swedish public's true grasp
and support of the changes remains to be seen. Government survey data
from the early 2000s suggests the public's understanding of the reform
is not high, despite outreach efforts.[Footnote 72] Although some
criticism exists of the reform, officials and experts believe it has
public support and will be sustained. Another government official
stated that people who currently oppose the system tend to base their
opinions on politics and not because of lost benefits. One result of
the reform, according to a government official and member of the
working group, is that young Swedes who previously had no confidence in
the system now believe they will receive a small pension. The complete
impact of the reforms and any potential need for reexamination will be
more evident as the phase-in of the system is more complete and baby
boomers begin collecting benefits.
Figure 4: Key Events in Sweden's Pension Reform, 1982 through 2001:
[See PDF for image]
This figure is a time-line of key events in Sweden's pension reform,
1982 through 2001. The following data is depicted:
Political events:
1982: Social Democrats control Parliament;
1984–1990: Pension committee;
1991: Non-Socialist Coalition controls Parliament;
1991–1994: Pension working group;
1994: Social Democrats control Parliament;
1994–1998: Pension implementation group.
Legislative events:
1992: Reform sketch released;
1994: Initial reform legislation passed;
1998: Final details of the reform passed;
2001: Automatic balancing mechanism passed.
Source: GAO analysis.
[End of figure]
[End of section]
Appendix V: Disability Reform in the Netherlands:
Reform Overview: Significance of the Reform:
Since 1967, the disability program in the Netherlands has had a broad
definition of "disability" that included partial disability benefits.
This broad definition opened the disability system to high levels of
use. For most of the 1980s, 1990s and the first half of this decade,
the proportion of the labor force on long-term disability was over 10
percent. Because there was broad support for the program and disabled
individuals in general, reforming the disability system was politically
difficult. The disability program had been a source of national pride
for the Netherlands, referred to as the "crown jewel" of its social
programs. After multiple attempts at reforming the system, a structural
reform of the program was implemented in 2006 that is seen as
significant by government officials and experts. The process leading to
the reform was long and difficult, requiring many attempts at reform
and a shift in public perception of the disability program. Figure 5
illustrates the key events that occurred in this reform process.
Figure 5: Key Events in the Netherlands Disability Reform Process:
[See PDF for image]
This figure is a time-line of key events in the Netherlands Disability
Reform Process.
Political Events:
1982: Christian Democrat Ruud Lubbers becomes Prime Minister, leading a
generally center right coalition;
1990: Prime Minister Lubbers claims that if the number of disability
beneficiaries reaches one million, he will resign;
1991: Further disability benefit cuts proposed, leading to protests;
1993: Buurmeijer Commission holds parliamentary inquiry;
1994: Labor Party member Wim Kok becomes Prime Minister with moderate
coalition government;
2000: Donner Commission established; released report in 2001;
2002: SER responds to Donner Commission recommendations;
2002: Christian Democrat Jan Peter Balkenede becomes Prime Minister,
leading a generally center right coalition.
Legislative Events:
1982–1987: Series of disability benefit cuts, including:
* 1982–1983: Abolition of disability tax exemption;
* 1984: Reduced earnings base;
* 1985 Reduced replacement rate;
* 1987: Reduction in partial disability benefit;
1992–2002: Reforms that stressed labor reintegration for disabled
individuals, including:
* 1992: TAV Act (repealed in 1995);
* 1993: TBA Act;
* 1994: TZ Act;
* 1996: WULBZ Act;
* 1998: PEMBA Act;
* 2002: Gatekeeper Act;
2005: Parliament passes disability reform that was implemented in 2006.
Source: GAO analysis.
[End of figure]
Disability in the Netherlands Differs from that in the United States:
The Netherlands disability system differs significantly from disability
programs in the United States and other countries. The disability
program in the Netherlands differs from Disability Insurance (DI) in
the United States in the following ways:
* The Netherlands provides a "partial disability" benefit.
Individuals in the Netherlands can claim a benefit if one is
"partially" disabled, meaning that those who can still work and those
who are still working can receive benefits if working at a reduced
capacity.[Footnote 73] Partial disability is rated on a percentage
basis; before 2006, beneficiaries had to be at least 15 percent
disabled to receive the benefit. No partial disability benefit exists
in the United States. In the United States, for a person to receive DI
benefits, the impairment must be of such severity that not only is the
person unable to do previous work but, considering his or her age,
education, and work experience, is unable to do any other kind of
substantial work that exists in the national economy.
* There is virtually no waiting period for receiving benefits in the
Netherlands.
While a claimant in the Netherlands does not qualify for the disability
program at first, he or she immediately qualifies for benefits under
employer financed "sickness insurance" for up to 2 years. In the United
States, one must have or expect to have a disabling condition for at
least 1 year and there is a mandated 5 month waiting period before
receiving benefits.
* The disability program was originally administered by employer and
labor groups in the Netherlands until the mid-1990s.
In contrast, U.S. disability benefits are administered by the
government.
Figure 6 shows the number of disability beneficiaries for each year
since the beginning of the disability program. Over this time, the
number of beneficiaries has generally increased. In the 1990s after a
period of decreasing beneficiaries, the number once again went up.
Figure 6: Disability Beneficiaries in the Netherlands: 1968 through
2007:
[See PDF for image]
This figure is a line graph illustrating the disability beneficiaries
in the Netherlands, 1968 through 2007. The vertical axis of the graph
represents number of beneficiaries in thousands from 0 to 1,000. The
horizontal axis of the graph represents years from 1968 through 2007.
Source: GAO analysis of data from the Netherlands Ministry of Social
Affairs and Employment.
[End of figure]
Origins and History of Reform:
Number of those receiving disability increased in the 1980s and
remained high despite benefit reductions:
Following a recession in the late 1970s, the Netherlands had an
increased rate of unemployment. Individuals-if they qualified- started
to claim disability benefits instead of unemployment benefits because
disability provided a more desirable benefit. For some, the benefit
facilitated early retirement. As the economy improved, however,
similarly high levels of disability beneficiaries continued. The
government believed that this was too costly and, if similar levels of
disability receipt continued, costs would continue to rise.
Reform of the disability system began in the 1980s and early efforts
focused on reducing disability benefits to reduce costs. These reforms
included ending tax exemptions for the disabled, a 10 percent reduction
in the disability benefit's replacement rate, and a decrease in the
earnings base (which is used to calculate disability benefits). While
the amount paid for individual benefits decreased, government data show
that the number of beneficiaries increased in this decade.
Policy reform in 1990s focused on return-to-work measures as public
perceptions of the program changed:
The number of people on disability continued to be high during the
1990s, with studies showing that the disability system was used as an
option for early retirement and unemployment ("stress" was also cited
as a reason for receiving disability benefits). Concerns about the
effect of population aging also created pressure for change, as this
could lead to even more use of the disability program.
A change in policy reform from benefit reductions to return-to-work
provisions was accompanied by political events that helped to change
public perception of the disability system and made the public more
amenable to reform.
In 1990, Prime Minister Ruud Lubbers (a Christian Democrat who served
as Prime Minister from 1982 through 1994) stated that the Netherlands
was "sick" and threatened to resign if the number of those in the
disability program in the Netherlands reached 1 million. Experts agreed
that 1 million was an arbitrary number, but it became an accepted
measure of the need for reform. While this threshold was never
surpassed, his statement generated public interest and concern over the
disability program, and the "1 million" measure continued to shape
discussion of the program past Prime Minister Lubbers' tenure.
Throughout the 1990s and beyond, experts noted that whenever the number
on disability approached 1 million, public discussion of the disability
system increased.
In 1991, major retrenchments of the disability program were proposed by
the governing coalition, a combination of the center-right Christian
Democratic party and the center-left Social Democratic party. These
proposals were met with disfavor, leading to large protests. According
to experts, the governing coalition was threatened with a loss of power
and did not follow through with the proposed reforms. One expert said
that this series of events was the catalyst for a shift in focus on the
part of the government to reforming the administration of the
disability system instead of a further reduction in benefits.
In 1993, a special parliamentary commission known as the Buurmeijer
Commission had an impact on public perceptions of the disability
program. The Buurmeijer Commission was a parliamentary group that held
hearings on social insurance programs[Footnote 74] including the
disability program. The chair was Flip Buurmeijer, a Social Democratic
member of Parliament. The commission led to policy recommendations, but
experts say that its most important legacy was informing the public and
changing its perception of the disability system. The hearings exposed
fraud and abuse in the disability program and showed the public how
both employer and employee interests benefited from misuse of the
disability benefit. One expert said that the commission identified this
moral hazard, which convinced the public that change was needed.
The commission had several features that experts said gave it the power
to change public opinion. First, parliamentary commissions are a rarity
in Dutch government, used primarily to investigate scandals and thus
significant attention was paid to the disability hearings. Second, the
hearings were broadcast on national television and viewed by many,
creating public awareness of fraud in the disability system.
Following the Buurmeijer Commission, reforms were implemented to
address the disability system's problems. Several laws were passed in
the 1990s containing provisions that aimed at returning disabled
employees to the labor force. Examples of these included: laws
mandating that employers pay the employee for an initial period of
time;[Footnote 75] incentives for employers to retain and recruit
disabled workers; and requiring reintegration plans for disabled
individuals to be submitted to a government organization.
However, experts said in most cases, reforms resulted in only limited
effects on new disability cases. Some of the laws during this period
had unintended consequences. One example given by an expert is a law
that intended to provide incentives to employers to limit the number of
employees that claimed disability while employed with them. As a
result, employers began to screen potential employees and, according to
experts, would not hire those who posed a risk of becoming sick or
disabled. In response, the government enacted a law that prevented
employers from performing health screenings for new employees. Other
disability reforms that proved controversial or problematic were
repealed. Some laws did have more lasting effects, including a 1998
PEMBA law, which indexed employers' contributions to the disability
system based on their risk.[Footnote 76]
Structural Reform Implemented in 2006, Prompted by the Donner
Commission:
In 2000, the Minister of Social Affairs and the Minister of Interior
Affairs of the moderate governing coalition established a commission
chaired by Piet Hein Donner, a member of the Council of State.[Footnote
77] This commission (known as the "Donner Commission") was the starting
point for the most recent reform, which was enacted in 2005 and
implemented in 2006.
According to one expert who was involved with the Donner Commission,
the commission was formed in an environment of political stalemate.
Parties in the coalition government could not agree on a path for
reform. Unions and employer groups were unsatisfied with progress on
reform and they were considering developing a proposal. As the number
of beneficiaries approached 1 million, the Minister of Social Affairs
believed that forming a commission would produce meaningful reform that
could break through the stalemate and the influence of unions and
employers on disability policy.
The Donner Commission was a small group that included members of each
of the principal parties. Five of the seven members represented the
five largest political parties in the Dutch government at the time,
although-with the exception of Donner-the members did not hold national
political offices. The sixth was an academic expert and the seventh was
a civil servant who acted as a government liaison. In addition, there
was a three person secretariat that produced reports and proposals for
discussion by the commission. According to an expert familiar with the
commission, the members were able to negotiate the reform package for
their respective parties. The meetings of the commission were closed to
the public. The commission drafted a report which included a set of
recommendations, the primary one being an elimination of the partial
disability benefit. The recommendations received much attention from
the media once they were made public.
Experts and government officials noted several reasons why the Donner
Commission was successful at designing a reform that was adopted and
appears to be effective. One expert said that the Donner Commission was
formed in part because the "normal" political channels would be unable
to reach an agreement on disability reform due to the controversy
surrounding it. The commission also built consensus among different
political parties; the fact that the commission had members from
multiple parties also made the recommendations more difficult to
ignore, according to one expert.
Following the issuance of the Donner Commission's recommendations, the
government asked that the Social and Economic Council (SER) provide
comments on the proposals. The SER is a standing body that includes
equal representation from labor, employers' groups, and government-
appointed members that represent the public interests. The SER
comments, either when requested by the government or by choice, on
social and economic policy. In March 2002, the group issued its
response to the Donner Commission's recommendations, unanimously
recommending maintaining a partial disability benefit. According to an
expert, vetting the recommendations through the SER brought about
consensus because there was input to the reform from interests outside
the government.
In July 2002, the center-right Balkenende government came to power. One
expert noted that the Minister of Social Affairs was committed to
disability reform. However, in October 2002, another round of elections
occurred, necessitating a delay in enactment of disability reform. The
reform was considered by Parliament in an environment of fiscal crisis,
as the Netherlands was in a recession. Government officials said that
these fiscal issues were not the drivers of reform, but that the
environment of fiscal crisis made reform of the disability program more
politically feasible.
Legislation was passed in 2005 and implemented in 2006 that contained
elements of recommendations from both the Donner Commission and the
SER. Experts said that the recent reform has had an initial impact of
reducing the number of those on the disability program.
This reform removed the partial disability benefit from the disability
program and created a separate system for those on partial disability.
In addition to establishing the separate partial disability system,
reforms occurring in the same period:
* increased the threshold to claim partial disability from 15 percent
disabled to 35 percent disabled;
* increased the benefit for those who were totally and permanently
disabled from 70 percent of predisability wage to 75 percent of
predisability wage; and;
* mandated medical reassessment for those under age 50 receiving
disability benefits.
While it is not possible to cite the exact impact of the 2006
disability reform, there has been a decrease in the number of people in
the disability program along with a reduction in the number of new
beneficiaries. The Netherlands government data show that the total
number on disability dropped from 963,800 in 2004 to 845,000 in 2007.
The data also show that inflow into the disability program has
decreased in this period, from 74,800 in 2004 to 56,000 in 2007.
Expectations: The Future of Reform:
Experts said that there were pressures to soften the reform, although
they disagreed as to whether there would be significant changes.
According to government representatives, the Parliament is examining
possible changes in the future to the benefit for those under age 18
who are covered by the program, due to recent increases in use of the
program by this age group. In addition, a longitudinal study is
currently underway that seeks to determine what happens to workers who
claim a disability over time under the new policy. Of particular
interest to the authors is whether changes in the disability policy
make it more likely for individuals to apply for other social programs,
such as unemployment or welfare.
[End of section]
Appendix VI: Pension Reform in Germany:
Reform Overview: Significance of the Reforms:
In Germany, as elsewhere in Europe, population aging and the
accompanying increase in the number of retirees relative to workers
have financially strained the pay-as-you-go (PAYGO) defined-benefit
public pension program. For this reason, policymakers have reformed the
pension program over the last 15 years, first by introducing measures
that made it less generous while preserving the basic structure of the
system in 1992 and 1999, then by changing its structure in 2001. The
monolithic PAYGO pension program then became a multipillar one with the
addition of supplementary pension schemes-specifically, fully funded
private and occupational schemes. Further changes in 2004 and 2007
sought to put the pension system on a financially sustainable path.
The reforms occurred incrementally as in the majority of countries
around the world, but were significant in the sense that, taken
together, they considerably transformed the world's oldest defined-
benefit public pension program, according to experts. The reforms were
initiated by the Christian Democratic Party/Christian Social Union
(CDU/CSU) but continued when the Social Democratic Party (SPD) came to
power in the late 1990s, as well as when a "Grand Coalition" brought
the two parties together in government in 2005. The reforms took place
in diverse political environments that were sometimes consensual,
sometimes more adversarial.
Origins and History of the Reforms:
By the mid-1980s, long-term demographic projections showed that the
public pension system would be financially unsustainable unless
contribution rates were increased dramatically, or benefits cut
substantially, according to an expert. The government of Chancellor
Helmut Kohl introduced reforms in 1989-which became effective in 1992
-under favorable economic conditions. Experts generally view these
reforms as consensual, with the main opposition party-the SPD-and the
governing CDU/CSU party agreeing on the measures. Changes included
indexing benefits to net wages instead of gross wages, which
effectively decreased benefits because higher contributions and taxes
reduced net wages relative to gross wages; increasing the normal
retirement age from 63 to 65; and actuarially adjusting pensions,
reducing incentives for early retirement, so those opting to receive
benefits before 65 would face permanent reductions.
However, the German reunification of 1989 made it clear that these
reforms would not be sufficient to make the pension system financially
sustainable for the next two decades, as expected. The unification
brought a large number of new claimants from the former East Germany
into the pension system, quickly putting pressure on its budget,
according to government officials. Also, high contribution rates and
the associated increase in nonwage labor costs became big issues in the
mid-1990s following the economic recession of 1992-93. The political
debate after 1995 emphasized pressures from globalization and European
monetary integration. In particular, it focused attention on how high
contribution rates would hinder Germany's competitiveness in the global
economy and prevent job creation.
New reforms passed in 1997-becoming law in 1999-but were politically
contentious. The federal elections in 1998 increased partisanship as
the reelection prospects of Chancellor Kohl, who had been in power
since 1982, became uncertain, according to an expert. The reform
provisions included gradually bringing women's and unemployed
individuals' normal retirement age in line with men's at 65. However,
in the charged political climate, the Social Democrats and labor unions
opposed, and subsequently reversed, the introduction of a demographic
factor that would have reduced the replacement rate of pensions.
The failure to reduce nonwage labor costs provided momentum for further
reforms once the SPD came into office under the leadership of
Chancellor Gerhard Schroeder. Paradoxically, the new government's
package of legislation in 2001 contained more drastic measures than
those they opposed a few years earlier, as the following examples
illustrate.
* The Riester[Footnote 78] reforms transformed the public pension
system into its current multipillar structure, with the traditional
earnings-related statutory PAYGO pensions constituting the first
pillar; occupational pensions making up the second; and the funded
private pensions representing the third pillar.[Footnote 79] These
private pensions were made voluntary, but the government sought to
encourage people to take them up by offering direct subsidies or tax
advantages.[Footnote 80] The relatively good performance of the stock
market in the 1990s and the idea that everyone could benefit from it
played a role in the promotion of these private pensions, according to
an expert. The successful introduction of individual accounts in other
countries, especially Sweden, which was viewed as a model by the Social
Democrats, also played a role.
* The Riester reforms stipulated a gradual reduction of the PAYGO first
pillar pensions by modifying the adjustment formula. They also set to
stabilize contributions rates at no more than 20 percent before 2020
and 22 percent before 2030 for the first pillar[Footnote 81] to avoid
negative effects on employment and growth. In addition, the reform
package fixed a target for the replacement rate, promising that
pensions would not fall below 67 percent of average net earnings, from
the current 70 percent. The replacement rate was actually redefined
insofar as it assumed the average worker would invest 4 percent of his
or her gross earnings in the new voluntary supplementary pensions. Some
experts view this replacement rate target more as a symbolic concession
that "modernizers" within the SPD made to the "traditionalists" and to
labor unions.[Footnote 82] The modernizers also managed to reach a
consensus with the opposition led by the CDU.
* The reforms included a built-in reexamination clause that called for
government action if contribution and replacement rate targets were not
expected to be met. This mechanism was triggered soon after as the
pension system experienced a financial crisis in 2002-2003, which
eventually led to further reforms.
A deep economic downturn in 2002-03 caused, to a large extent, this
financial crisis in the pension system. Unexpectedly high unemployment
rates and dismal economic growth created a sense of urgency for
reforms, according to an expert. In November 2002 immediately after
winning a second term in the federal elections, Chancellor Schroeder's
government set up a commission. The Rurup Commission[Footnote 83] was
charged to make recommendations on ways to achieve sustainability in
the pension system, as well as in health and long-term care insurance
schemes. The commission was a way for the government to build consensus
for further changes in these programs. It gave more legitimacy to
reforms as the government lacked the strong mandate it enjoyed during
its first term, with the CDU-led opposition clearly dominating the
upper house-or second chamber-of Parliament, the Bundesrat, according
to government officials. By deferring responsibility-and blame-to a
commission of experts, the "modernizers" within the Social Democratic
Party also sought to overcome intraparty opposition.
The Rurup Commission was composed of 26 members with representatives of
various interests in society, including labor unions and employers'
organizations, and officials from lower levels of government. The
subcommission on public pensions had about a third of the total number
of members. It was successful in pushing for broad reforms, unlike the
other two subcommissions on health and long-term care insurance, partly
because the group agreed early on to avoid extreme ideological
positions and find a rational, rule-bound middle ground acceptable to
everyone, according to a member of this group. The subcommission on
health insurance, on the other hand, was deeply divided and could not
achieve a majority behind a policy model.[Footnote 84] Moreover, the
media focused its attention on the bitter debates over health insurance
financing as those became public, even though commission members were
supposed to avoid public commentary and position taking, according to
government officials. This allowed the pension group to work without
close public scrutiny.[Footnote 85]
All but one of the recommendations of the Rurup Commission regarding
pensions-the 2004 reforms[Footnote 86]-became legislation fairly
rapidly. Building on the Riester reforms, the new provisions included
supplementing the pension benefit adjustment formula with a new
"sustainability factor" to reflect changes in the number of workers
supporting the system relative to pensioners;[Footnote 87] and
loosening the rules and regulations governing the Riester pensions to
encourage greater participation.[Footnote 88] The sustainability factor
would lead to smaller pension adjustment, hence smaller increase in
benefits, whenever the ratio of contributors to pensioners
declines.[Footnote 89] The pension adjustment would be allowed to go
down to zero but not lower to prevent pensions from declining, in
nominal terms. The commission's projections showed that individuals
choosing to invest in supplementary pensions, either in the second or
third pillar, would be able to maintain a constant replacement
rate.[Footnote 90] The sustainability factor was introduced to ensure
that the pension system would be self-sustaining, balancing itself
automatically in line with demographic development and employment
levels.[Footnote 91] The expectation was that such a mechanism reduces
the need for future reexamination and helps "depoliticize" the system.
The 2004 reforms also stipulated that the government should report to
the legislative bodies-the Bundestag and Bundesrat-every 4 years on
whether targeted replacement rates for 2020 and 2030 are at risk, given
the contributions rates, and if so, propose remedies.
Only one recommendation of the Rurup Commission-the gradual increase in
the retirement age from 65 to 67-was adopted later in 2007 by the
current coalition government, which includes both the SPD and the CDU.
The fact that this highly unpopular measure was postponed for several
years can be interpreted as a sign that the reformers in the Schroeder
government recognized the need to reach a compromise with its
opponents, both inside and outside of the party, according to a German
expert. But it was more a symbolic concession in the sense that the
provision had not been scheduled to come into effect before 2011.
The Reforms and the Public:
According to an OECD official, the pension reforms were technical but
efforts were made over several years to ensure that the public
understood them. Experts also told us that the need for change in the
public pension system in Germany has been discussed widely since the
early 1990s. Successive governments in the last 15 years have made
citizens aware of the necessity of reforms by using the recurring
themes of population aging and high labor costs hampering economic
growth. Reforms took place incrementally over this period of time.
Overall, there was a mix of behind-the-scene work on the specifics and
public information.
Since 2004, every year individuals receive a report detailing their
pension information.[Footnote 92] Financial institutions offering
private pensions must also provide information on possible investments,
portfolio structure, and risk potential to their clients before
contracts are signed.
Expectations: The Future of Reform:
Government officials and some experts expect these reforms to be, on
the whole, sufficient to ensure the sustainability of the pension
system for the near future, and therefore do not foresee significant
changes to the system. Officials seem cautiously optimistic that with
time and the tax incentives and subsidies provided for supplementary
pensions, people will enroll at sufficiently high rates. Experts
estimate that the demand for Riester pensions doubled in 2004 after a
slow start, then again in 2005 to reach more than 20 percent of all
workers covered by the statutory first pillar, with another steep
increase in 2006.[Footnote 93] Taken together, the three pillars of the
pension system should ensure adequate pensions, according to officials.
However, some characteristics of the system may lead to certain groups
of people retiring with insufficient pensions. For example,
supplementary private pensions are voluntary rather than mandated, and
even though the take-up rate has been increasing, individuals may fail
to contribute to them on a regular basis throughout their working life.
Moreover, the market returns on these private pensions may be too
modest. Also, low-income individuals may have less incentive to
contribute to private pensions despite the high subsidies provided to
them because these pensions would affect their eligibility for other
means-tested payments, such as the minimum social security guarantee
for old age.
Figure 7: Key Events in German Pension Reform Process:
[See PDF for image]
This figure is a time-line of key events in German Pension Reform
Process. The following data is depicted:
Political Events:
1982: CDU/CSU wins Parliament (with Free Democratic Party (FDP)); Kohl
becomes Chancellor;
1998: SPD wins Parliament (with the Green Party); Schroeder becomes
Chancellor;
2002: Rurup Commission formed;
2005: Grand Coalition SPD and CDU/CSU formed after federal elections;
Merkel becomes Chancellor.
Legislative Events:
1989: Pension Reform Act passed (effective 1992);
1997: New reforms passed (effective 1999);
2001: Riester Reforms passed;
2004: Rurup proposals adopted (except retirement age change);
2007: Retirement age change adopted.
Source: GAO analysis.
[End of figure]
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Susan J. Irving, (202) 512-9142 or irvings@gao.gov:
Acknowledgments:
In addition to the contact named above, key contributors to this report
were James McTigue, Assistant Director; Linda Baker, Analyst-In-Charge;
Lisa Henson; Jeff Niblack; Lindsay Welter; and Seyda Wentworth.
[End of section]
Footnotes:
[1] S. 2063 would establish a Bipartisan Task Force for Responsible
Fiscal Action. A supermajority approval of the task force's report by
12 of its 16 members is needed for the task force to make
recommendations. A companion bill, HR 3655, was introduced in the House
of Representatives on September 25, 2007. Securing America's Future
Economy Commission Act, or SAFE Commission Act, S. 304, introduced on
January 16, 2007, would establish a commission to-among other things-
-develop legislation to address the imbalance between long-term federal
spending commitments and projected revenues. A companion bill, HR 3654,
was introduced in the House on September 25, 2007. This proposal would
establish a commission composed of 14 Congressional appointees, the
Secretary of the Treasury and the Director of the Office of Management
and Budget.
[2] On January 22, 2007, Senators Feinstein and Domenici introduced the
Social Security and Medicare Solvency Commission Act (S. 355) that
would establish the National Commission on Entitlement Solvency to
review and report to the President and the Congress on the Social
Security and Medicare programs every 5 years with respect to their
financial condition and long-term sustainability. On April 24, 2007,
Senators Hagel and Webb, and Representatives Tanner and Castle
introduced the Comprehensive Entitlement Reform Commission Act of 2007
(S. 1195, HR 2024). On January 16, 2007, Representative McHenry
introduced the Commission on Reforming Entitlement (CORE) Spending Act
(HR 489).
[3] GAO, The Long-Term Fiscal Challenge: Comments on the Bipartisan
Task Force for Responsible Fiscal Action Act, GAO-08-238T (Washington,
D.C.: Oct. 31, 2007).
[4] See GAO, A Call for Stewardship: Enhancing the Federal Government's
Ability to Address Key Fiscal and Other 21ST Century Challenges, GAO-08-
93SP (Washington, D.C.: December 2007).
[5] See GAO, Social Security Reform: Other Countries' Experiences
Provide Lessons for the United States, GAO06126 (Washington, D.C.: Oct.
21, 2005).
[6] See GAO, Social Security Reform: Analysis of Reform Models
Developed by the President's Commission to Strengthen Social Security,
GAO-03-310 (Washington, D.C.: Jan. 15, 2003); Social Security:
Evaluating Reform Proposals, AIMD/HEHS-00-29 (Washington, D.C.: Nov. 4,
1999); and Social Security: Criteria for Evaluating Social Security
Reform Proposals, T-HEHS-99-94 (Washington, D.C.: Mar. 25, 1999).
[7] See OECD's Health at a Glance 2007-OECD Indicators. See also
European Commission, The Impact of Ageing on Public Expenditure:
Projections for the EU-25 Member States on Pensions, Healthcare, Long-
Term Care, Education and Unemployment Transfers (2004-50) (European
Commission Directorate-General for Economic and Financial Affairs,
2006). According to the European Commission, health care grew faster
than GDP in all member countries of the European Union in the 1990s
except Finland, Luxembourg, Denmark, and Sweden. In most EU countries
spending on health care accounted for a growing share of total public
spending in the past several decades, especially in the 1990s.
[8] The public sector continued to be the main source of health
financing in all OECD countries in 2005 except Mexico, the United
States, and Greece.
[9] Total U.S. health spending was 15.3 percent of GDP in 2005. The
relative shares of public and private spending do not reflect
government tax subsidies for private health care spending. In the
United States, federal revenue losses due to health care-related tax
preferences amounted to more than 1.5 percent of U.S. GDP in 2005. As a
result, for the U.S., the private share is somewhat overstated and the
public support understated. Health tax preferences also exist in some
other countries, but information about these preferences is not readily
available.
[10] GAO, Budget Issues: Accrual Budgeting Useful in Certain Areas but
Does Not Provide Sufficient Information for Reporting on Our Nation's
Longer-Term Fiscal Challenge, GAO-08-206 (Washington, D.C.: Dec. 20,
2007).
[11] GAO, Social Security Reform: Implications of Different Indexing
Choices, GAO-06-804 (Washington, D.C.: Sept. 14, 2006). It is important
to note that the structure of public pension programs differs across
countries, and hence may not be not strictly comparable. For example,
contributions in some cases help finance maternity/paternity and
unemployment benefits in addition to old age benefits.
[12] For more information, see OECD, Pensions at a Glance: Public
Policies Across OECD Countries (OECD, 2007 edition). In our 2005
report, we noted that all OECD countries have made changes to their
national pension systems, as did Chile. See GAO06126.
[13] For women the reduction was 25 percent.
[14] Gross replacement rate for male workers with average earnings. See
table II.1.4 in OECD's 2007 Pensions at a Glance. For Sweden the
estimated reduction was 17 percent; for Germany, 9 percent.
[15] See European Commission, Directorate-General for Economic and
Financial Affairs, Public Finances in EMU-2007 (2007).
[16] See Giuliano Bonoli, The Politics of Pension Reform: Institutions
and Policy Change in Western Europe (Cambridge: Cambridge University
Press, 2000).
[17] In its 2007 assessment of the long-term sustainability of public
finances in the U.K., the European Commission stated that the U.K.'s
proposed reforms to pensions addressed the concern of potentially
inadequate provision in the future by strengthening the incentives for
private savings for retirement and by increasing provision of public
pensions, thus involving a slightly higher increase in public pension
expenditure than previously projected; the reform also incorporates a
planned gradual increase in the statutory state pension age.
[18] For studies of recent reforms to European entitlement programs,
see http://www.ces.fas.harvard.edu/conferences/bismarck/papers.html.
[19] See OECD, Transforming Disability Into Ability: Policies to
Promote Work and Income Security for Disabled People (2003), Table 7.1.
[20] European Commission, Directorate-General for Economic and
Financial Affairs, European Economy: The Long-term Sustainability of
Public Finance in The European Union (2006).
[21] See Daniel Clegg, "Unemployment Policy Reform in 'Bismarckian'
Welfare States: The Cases of Belgium, France, Germany and the
Netherlands," paper prepared for the conference "A Long Goodbye to
Bismarck? The Politics of Welfare Reforms in Continental Europe," Minda
De Gunzburg Centre for European Studies, Harvard University, June 16
and 17, 2006.
[22] According to Swedish government officials, a negative correlation
has existed in recent years between trends in unemployment and sickness
receipt. Officials emphasized the importance of looking at the number
of all those who are supported by government programs rather than being
active in the labor force.
[23] See Denmark's National Reform Programme: First Progress Report
(October 2006). The European Commission cited the Welfare Agreement in
its 2007 assessment of Denmark as a country with low risk with respect
to the long-term sustainability of its public finances.
[24] GAO, Older Workers: Policies of Other Nations to Increase Labor
Force Participation, GAO-03-307 (Washington, D.C.: Feb. 13, 2003).
[25] According to an OECD official, reforms in OECD countries focused
on cost containment in the 1980s; in the 1990s, concerns focused on
obtaining value for spending. A 2003 report by the European Council,
Committee on Social, Health, and Family Affairs noted that in the
1980s, health care reforms in Western European countries aimed at
controlling spending; in the 1990s reforms were concerned with the
quality of care and equity of access. For information on countries'
health care systems and reforms, see the European Observatory on Health
Systems and Policies, WHO European Centre for Health Policy, which
publishes Health Systems in Transition (HiT) profiles. These are
country-based reports that provide a detailed description of each
health care system and of reform and policy initiatives in progress or
under development. See [hyperlink,
http://www.euro.who.int/observatory/ctryinfo/ctryinfo]. See also the
International Network Health Policy and Reform, which monitors health
policy trends and developments in 20 industrialized countries. See
[hyperlink, http://www.hpm.org/en/index.html].
[26] In 2006. For more information on entitlement reform in the
Netherlands, see The National Reform Programme for the Netherlands:
2005-2008.
[27] The commission was also unable to reach consensus on a proposal
for long-term care.
[28] In the 1980s in some countries, including Canada, Japan and the
U.K., pension reforms that reduced benefits and made changes to other
entitlement programs took place in a context of deficit reduction
efforts. See GAO, Deficit Reduction: Experiences of Other Nations, GAO/
AIMD-95-30 (Washington, D.C.: Dec. 13, 1994).
[29] The 2002 Rurup Commission's recommendation for a "sustainability
factor" was enacted in 2004 and its recommendation for increasing the
retirement age was enacted in 2007.
[30] GAO-06-126.
[31] Tetsuo Kabe, "Japan's Public Pension Reforms," Urban Institute
International Conference on Social Security Reform, February 24, 2006.
[32] One expert has described these concerns as creating an environment
of "permanent austerity." See Paul Pierson, "Coping with Permanent
Austerity: Welfare State Restructuring in Affluent Democracies" in The
New Politics of the Welfare State, ed. Paul Pierson (Oxford: Oxford
University Press, 2001).
[33] An important condition for successfully moving to a single
European currency is that economies of the participating countries
should converge towards each other and remain healthy. Members of the
European Union are expected to avoid excessive budgetary deficits
(i.e., above 3 percent) and to ensure their debt to GDP ratio stays
within the reference value limit of 60 percent as specified in the
Maastricht Treaty. The budgets of EMU countries are monitored annually
by the European Commission for compliance with the targets and for the
long-term sustainability of their public finances.
[34] Promulgated in 2000 and updated in 2005. The Netherlands' 2007
report on its National Reform Programme can be found at [hyperlink,
http://ec.europa.eu/growthandjobs/pdf/1206_annual_report_netherlands_en.
pdf].
[35] Various explanations have been given of the relationships between
prompts and actual reform. Some observers believe that severe economic
or budgetary problems are a precondition for countries to undertake
reform. Other observers and government officials have noted that an
environment of economic or fiscal crisis may facilitate public
acceptance and hence enactment of reforms. Conversely, one quantitative
study of 57 developed and developing countries has shown that countries
with a high public debt to GDP ratio are less likely to privatize their
pension programs (at least when pension liabilities are low or
moderate). The study attributes a lack of reform in these types of
circumstances to an inability to finance the transitional costs
associated with moving from a public pay-as-you-go system to a system
of fully funded individual accounts.
[36] According to OECD, most countries set up ad-hoc commissions when
pension reform processes are being launched.
[37] On stages of reform, see Mitchell A. Orenstein, "How Politics and
Institutions Affect Pension Reform in Three Postcommunist Countries"
(Washington, D.C.: World Bank Policy Research Working Paper 2310, March
2000). Orenstein divides the reform process into three stages-
commitment building, coalition building, and implementation. The
commitment-building phase ends when the government creates a special
office or working group with a clear mandate to develop and pursue a
single type of pension reform. See also Sarah M. Brooks and R. Kent
Weaver, "Lashed to the Mast?: The Politics of Notional Defined
Contribution Pension Reforms" (Boston: Center for Retirement Research,
January 2005).
[38] See Val Koromzay, "Some Reflections on the Political Economy of
Reform," Paper presented at the Conference on Economic Reforms for
Europe: Growth Opportunities in an Enlarged European Union. Bratislava,
Slovakia, March 18, 2004.
[39] See Sanneke Kuipers, The Crisis Imperative: Crisis Rhetoric and
Welfare State Reform in Belgium and the Netherlands in the Early 1990s
(Amsterdam: Amsterdam University Press, 2006).
[40] The Commission's charter was to investigate the administration of
social insurance programs including unemployment.
[41] Inquiries of this type are customarily used to investigate alleged
fraud and abuse or scandal.
[42] Pension reform in Spain also involved the use of a parliamentary
working group.
[43] From 1994 to 1998 a second parliamentary group worked out the
details of the reform. Following the 1994 elections, in which the
Social Democratic party took the majority, the second working group was
chaired by a Social Democrat who had played a key role in developing
the reform concept put forward by the first working group.
[44] Chancellor Schroeder also established other reform commissions
including one on unemployment, the Hartz Commission.
[45] The Commission had recommended abolishing the benefit for partial
disability; the enacted proposal created retained a benefit for partial
disability but made this a separate program.
[46] See GAO03307.
[47] In France a permanent government commission created in 2000 was
tasked with monitoring the retirement system and making recommendations
for change based on consultation. This group is composed of members of
Parliament, representatives of employer and employee groups, and
government officials. According to one expert this council established
the concept for the 2003 pension reform.
[48] Some observers have attributed this to the U.K. form of
parliamentary government, which provides few hurdles to the exercise of
power by a strong majority government.
[49] In both cases, subsequent governments returned to the issue and
continued to seek reforms.
[50] Social Dialogue and Pension Reform, ed. Emmanuel Reynaud (Geneva:
ILO, 2000). This 2000 study noted that in contrast to other countries
studied (Sweden, Germany, Japan, Italy, and Spain), the will to seek
consensus on pension reform was weak in the United Kingdom.
[51] In Orenstein's view, tradeoffs exist across phases of reform in
terms of who should be included in the process of proposal development.
In his view, the smaller the number of key actors involved in design of
reform at the commitment-building phase, the faster and more radical
the reform. However, excluding key actors at the commitment-building
phase (including those who have the political capacity to hobble or
prevent reform) may cause them to mobilize effectively against reform
in later phases.
[52] See Brooks and Weaver.
[53] GAO-06-126.
[54] Other countries also have similar mechanisms. Canadian pension
reform includes a re-visiting under specified circumstances as
evaluated by their Chief Actuary. According to one expert, Canada's
mechanism is not expected to be triggered. In France, an advisory
council was created in 2000 to monitor the French retirement system and
to put forward recommendations for public policy concerning retirement.
The council includes members of Parliament, representatives of employer
and employee groups, experts, and representatives of the state.
[55] Sweden's reform also included a notional defined contribution
(NDC) system for its pay-as-you-go defined benefit pension. This system
automatically adjusts initial benefits to changes in longevity. Other
countries including Italy have also adopted NDC systems as part of
reform.
[56] See our discussion of "hard" and "soft" triggers in Mandatory
Spending: Using Budget Triggers to Constrain Growth, GAO-06-276
(Washington, D.C.: Jan. 31, 2006).
[57] See Rudolph G. Penner and C. Eugene Steuerle, Stabilizing Future
Fiscal Policy: It's Time to Pull the Trigger (Washington, D. C.: The
Urban Institute, Aug. 2007).
[58] Italy has established a body tasked with monitoring pension
finances and making the calculations that determine the notional
defined contribution adjustment; the government and others have to
agree on the adjustment.
[59] One expert has noted that a shift to price-indexation of initial
pension benefits in the U.K. reform of the 1980s was the first use of
an automatic mechanism to adjust benefits. Over time this mechanism
reduced benefits such that elderly poverty became an issue in the
United Kingdom. Recent reforms include a modification to the 1980s
formula. See Richard Jackson, "The 'State of the Art' in Entitlement
Reform: Lessons from Abroad," Facing Facts Quarterly, Vol. II, No. 1
(Washington, D.C.: Concord Coalition, Winter 2006). Jackson describes
the U.K. change as a "blunt instrument" in comparison with recent NDC
systems.
[60] Brooks and Weaver have expressed the view that NDC-based reforms
are likely to work best in countries that have the political capacity
to achieve and sustain broad political agreement and the administrative
capacity to produce independent forecasts of economic and demographic
trends and complete and accurate records of earnings, as well as the
capacity to ensure compliance and adequate understanding on the part of
employers and employees. NDC-based reforms are less likely to work well
where these capacities are lacking.
[61] In 1983, a "hard" trigger was added to Social Security. Under
current law, Social Security benefits for the elderly and disabled are
updated annually by the change in inflation as measured by the Consumer
Price Index. Should the trust fund ratio of payable benefits to
reserves fall below a specified level, however, the annual update is to
be the lower of price or wage change. The "triggering" trust fund
percentage was 15 percent through 1988 and 20 percent for 1989 and
later (42 U.S.C. §415(i)). To date, trust fund ratios have remained
above the threshold.
[62] Although the balance mechanism was mentioned in the 1998 reform
legislation, it was not formalized until additional legislation was
passed in 2001. Pay-as-you-go pension systems use contributions from
current workers to fund current beneficiaries.
[63] For further discussion of the programmatic changes to Sweden's
pension system, see GAO, Older Workers: Policies of Other Nations to
Increase Labor Force Participation, GAO-03-307 (Washington, D.C.: Feb.
13, 2003).
[64] Notional accounts hold contributions and investment earnings, but
exist only on the books of the managing institution. At retirement, the
accumulated notional capital in each account is converted to a stream
of pension payments using a formula based on factors such as life
expectancy at retirement.
[65] The fund is the difference between contributions and expenditures
in the pension system. The fund can include investments in any capital
market instrument that is quoted and marketable, but the fund is
subject to several restrictions on the allocation of the investments.
From 1999 to 2001, the fund was used to help ease the transition to the
new system. In the future, the fund will help finance pensions for baby
boomers.
[66] Social Democrats are a left-of-center party generally aligned with
the interests of labor.
[67] One academic expert told us he believed the Social Democrats tried
to "bury" the issue in the committee.
[68] Although seven parties were represented, five parties constituted
an "inner circle" that negotiated the substantial reform elements, and
later were the supporters of the reform.
[69] The implementation group was chaired by a Social Democrat who was
instrumental in developing the reform proposal in the 1991 group.
[70] Individuals born between 1938 and 1953 will receive adjusted
benefits from both systems, and individuals born after 1954 will
receive pensions based completely on the new system. Individuals born
before 1938 receive benefits based on the old system.
[71] In the fall of 2006, after the committee released its report in
2005, Sweden's government changed from Social Democrat control, to a
center-right coalition government.
[72] According to an official from Sweden's National Insurance Board,
about 3 percent of Swedes report their knowledge of the pension system
as "very good," and about one-third say their knowledge is "good" while
about 50 percent reports that their knowledge is poor and 10 percent
that their knowledge is very poor.
[73] This benefit is less than the benefit one would receive if one
qualified for full disability benefits.
[74] The Buurmeijer Commission also looked at unemployment benefits.
[75] This is part of the sickness insurance. Subsequent legislation
increased the period of time that the employer paid.
[76] "PEMBA," when translated to English, stands for "Act on Premium
differentiation and market-competition in the disability insurances."
[77] The Council of State is a constitutionally established advisory
body to the government, which advises the Cabinet before laws are
submitted to Parliament. Its membership includes members of the royal
family and appointed members from various backgrounds including
military, political, and business.
[78] The reforms were passed through parliament by the labor minister
Walter Riester.
[79] Older workers with low incomes and those with reduced earning
capacity are also entitled to a means-tested benefit.
[80] The individual pensions are specially regulated contracts with
financial institutions. People investing in these are guaranteed, at a
minimum, to get back the amount they put in. The government subsidies
are especially high for low-income people and those with children.
[81] The contribution rate on this earnings-related pillar is shared
equally between employers and employees.
[82] Some experts view fixing targets for both contribution and
replacement rates as contradictory.
[83] Bert Rurup chaired the commission, more formally called the
Commission for Sustainability in Financing the German Social Insurance
Systems.
[84] The Rurup Commission was more limited in its options for health
insurance reform, according to an expert, because of strong organized
interests-doctors, hospitals, pharmaceutical companies, health
insurers, etc.-and the conflicting political values behind the
different financing models. Some observers also believe that the
Federal Minister for Health and Social Policy Ulla Schmidt's choice of
appointments on the commission may have led to this division.
[85] The opposition led by the CDU set up its own Herzog Commission to
look into the same issues. The two commissions worked closely together
behind the scenes on pension reform, according to a member of the Rurup
Commission.
[86] The reforms were passed under the Old-Age Pensions Insurance
Sustainability Act.
[87] Benefits are computed as follows: for each year of contributions,
an individual receives pension points. At retirement, the sum of
pension points are multiplied by a pension point value currently set at
about 23 euros. This pension point value is adjusted annually by an
index that is based on net wage growth and the sustainability factor.
All German pensions-both for new and current retirees -are affected by
these adjustments.
[88] For example, individuals eligible for government subsidies for the
supplementary pensions now include all taxpayers. Also, the procedures
for granting government subsidies have been simplified.
[89] Conversely, pension adjustment would increase if the number of
working people contributing to the pension system rises relative to the
number of individuals receiving pensions.
[90] With the Rurup Commission's economic and demographic projections,
pension replacement rates will initially decline then reach their 2004
level by 2030.
[91] Hence, the sustainability factor takes into account not only
changes in life expectancy but also fertility rates, immigration, as
well as other factors.
[92] Specifically, individuals from age 27 receive an annual pension
statement; from age 54, they receive a more detailed statement every 3
years. The report includes information on their entitlements and their
expected pension. People can also check their report online.
[93] Axel Boersch-Supan, Anette Reil-Held, and Christina B. Wilke, "How
a Unfunded Pension System Looks like Defined Benefits but Works like
Defined Contributions: The German Pension Reform," Paper written for
the Fundacion Carolina (May 31, 2007).
[End of section]
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