Estudio de fotocatalizadores de Ni-TiO 2

Valorisation (pre-retirement indexation of contributions) and indexation (of benefits in payment) are both closely linked. Valorisation (Table 5) of past salaries or contributions has an impact on how pensions replace income from work at the moment of retirement, and indirectly on how much pensioners are exposed to the risk of poverty. Indexation of pensions is crucial for maintaining living standards after retirement.

Table 5. Valorisation of pensionable earnings in Member States

Variable Member States

Wage growth CZ, CY, LT, LU, SI, SK and UK

Wage growth and change in pensioner-contributor- relation or in number of contributors

DE, LV

Prices and wages FR, FI, EE, LU and MT

Prices BE, ES

Labour productivity and prices PT

Average income SE

Ad hoc HU

Source: Indicators Subgroup of the Social Protection Committee Note: Luxembourg – after 2020 100% prices and 50% wages

In the earnings-related pension schemes, all countries revalue earnings from earlier years to the time of retirement when calculating benefits. This mechanism adjusts for changes in costs and standards of living between the time pension rights were earned and when they are claimed. Valorisation of past earnings impact on replacement rates and fiscal sustainability in major ways. This is a result of the compound-interest effect.

Table 6. Indexation of income-related pensions in Member States

Variable Member States

Wage growth SI, DK and SE

Wage growth and change in pensioner-contributor- relation

DE

Prices and wages BG, CZ, EE, CY, LU, HU, PL, FI, SK,

MT and RO

Prices BE, ES, FR, IT, LV, AT and UK

Prices and GDP growth (partially) PT

Discretionary EL, LT, IE and AT

Progressive EL, IT and PT

Source: The 2012 Ageing Report, Joint Report on Social Protection and Social Inclusion 2009, Indicators Subgroup of the Social Protection Committee.

Note: Belgium: prices + partial adjustment to living standards. Hungary: prices + partial adjustment to net earnings growth in case of high GDP growth. Luxembourg: after 2020 100% prices and 50% wages. Latvia: no indexation until 2013 and price indexation from 2014.

Many EU countries with earnings-related schemes valorise past earnings in line with economy- wide wage growth. However, several countries have moved away from earnings valorisation in recent years and they valorise earnings to price inflation or a mix of price inflation and earnings growth.

In addition, many countries have amended their indexation rules of pensions in payments granted under their main public pension scheme. See Table 6 for a summary of indexation rules of income-related pensions in Member States.

Indexation is no less important than valorisation to maintain the living standards of pensioners. Unless pensions in payment are protected by indexation, older people's consumption levels and relative standards of living can be disproportionately affected by inflation. Indexation of benefits makes their long-term real value more certain and helps to avoid recurrent political debates. Price indexation maintains the purchasing power of pensions, but is generally less than wage indexation. Therefore, in case of price indexation, replacement rates of the year of retirement explain only partially the adequacy of the pension system because they do not cover the relative decline during the pensioners' life.

The variant case of current Theoretical Replacement Rates that analyses “a worker ten years after retirement” is a useful tool to assess the situation in 2020 of pensioners who are retiring today (in 2010). This variant case calculates the pension 10 years after retirement (i.e. in 2020 for current replacement rates) of the individual who retired in 2010 divided by the income of another worker retiring in 2020 after 40 years career. This helps to provide an assessment of the evolution of the relative position of the individual, typically reflecting pension indexation. The Figure 26 shows, for a pensioner retiring in 2010, the percentage point difference between net and gross replacement rates ten years after retirement (i.e. 2020) compared to those ratios at the

year of retirement (2010). According to the calculations, in all but a few Member States net replacement rates fall significantly (at least 5 p.p. and in some cases more than 10%) in all schemes ten years after retirement. This shows how the living standards of a pensioner will drop over time relative to the rest of the population as pensions in payment most often lag behind the evolution of wages. In case of LT the positive change is possible because pensions have been temporarily cut in 2010 and 2011, and their original value would be restored afterwards. Indexation to wage growth was assumed in the calculation of pensions, so the 2020 value would be higher compared to the value in the base year 2010.

Figure 26. The effect of indexation on replacement rates 10 years after retirement

Source: Indicators Subgroup of the SPC, 2010 - 2050 Theoretical Replacement Rates exercise

For a given expenditure level, the indexation issue can be viewed as a choice between a lower initial pension combined with earnings indexation and a higher starting benefit combined with price indexation. Different criteria could determine the choice85.

Higher initial pension level may encourage early retirement, since people do not usually make calculations about later indexation. Younger retirees have more opportunities for spending on leisure, but health expenditures may increase with age, especially for long-term care. Indexation policy can have distributional effects, as people with lower incomes have shorter life expectancy. In addition, since women live longer, the choice applied is not gender neutral. Moreover, wage indexation of minimum income benefits may raise their level and strengthen work disincentives for those with lower incomes. Recipients of generously indexed benefits also have fewer gains from anti-inflation policies and thus have fewer incentives to bear the cost of adjustment.

A majority of countries in the EU rely on indexation rules for their earnings-related pensions that do not fully reflect developments in nominal wages. Some countries have introduced 'sustainability factors' and link indexation to demographic developments or financial stability of

85

E. R. Whitehouse (2009), “Pensions, Purchasing-Power Risk, Inflation and Indexation”, OECD Social,

the system (e.g. DE, SE, PT), or use above-inflation rises in pension payments only in times of high economic growth (e.g. HU, PT).

Low indexation of pension benefits often leads to a situation where older pensioners are more exposed to monetary poverty. Moreover, the inflation rate for older and younger pensioners might differ. This is why some countries have introduced progressive indexation of their pensions, where the increases granted to smaller pensions are larger. Otherwise, the poorest pensioners often have to rely on minimum income provisions. Some Member States adjust pensions by using indexes which reflect the appropriate basket of goods and services to measure the changes in cost of living faced by retirees.

The crisis has prompted some pension policy measures which are seen as part of the fiscal consolidation strategy. Notably, the need for cost-containment has motivated many Member States to review their methods for the indexing of pension benefits in payment and they have come to reduce the indexation of pensions or temporarily frozen pension benefits levels (e.g. ES, LV, and PT). However, Member States have often prioritized the full indexing of basic,

guarantee and minimum income provisions, so as to mitigate the risk of poverty and material deprivation for low income and vulnerable older people (e.g. in ES, LT, PT). In

CY cash benefit schemes have been addressed to pensioners' households whose total annual income is below the poverty threshold. Thus, in order to avoid increasing precariousness as part of austerity measures, Member States consider it important to concentrate pension benefits where they are most needed and seek savings where they can be more easily absorbed without causing a significant detrimental effect.