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Social Platform Capacity-Building Seminar: “Demographic change and the financial sustainability of social protection systems ” 16th November 2005 –10.00 – 16.00 h SEMINAR REPORT Contents 1. Introduction 2. Key issues of the presentations and discussions 3. Participant list 1. Introduction The Social Platform decided to hold a seminar on demographic change in the context of its work programme for 2005. It was agreed that the specific focus should be on the link between the ageing of society and the financial sustainability of social protection systems in Europe. As demographic change will remain on the European policy agenda in the next years, the seminar aimed to develop the knowledge of members in this field in order to be better prepared for current discussions such as the debate about the future European Social and Economic Model. Members expressed their expectations for the seminar on the registration form. The main interest was to learn how social protection systems can be modernized in order to better integrate the needs of specific vulnerable groups such as people doing unremunerated work (most often women), children, young people etc. The seminar was structured around three presentations. A fourth presentation by Michelle Lewis, Trades Union Congress (UK) on Pension Reforms in the UK was cancelled at the last minute. - 1. presentation: Professor Jos Berghman (K.U. Leuven) presented a general introduction to the main challenges in relation to demographic change and the funding of social protection systems - 2. presentation: Nicole Fasquelle (Belgian Planning Bureau) explained the way the Belgian state tries to calculate the long-term perspectives of the sustainability of its social protection system. - 3. presenation: Pascale Vielle (Institut pour l’égalité entre les hommes et les femmes, Belgium) discussed the political discourse of demographic change and social protection from a gender perspective 2. Key issues of the presentations and the discussion European social protection system and the challenges of demographic change Jos Berghman gave a comprehensive introduction to the key issues of the debate. Demography Jos Berghman stated that demography in itself is not important for social policy; what matters are the socio-demographic aspects that will have an impact on the relevant policies. The relationship is determined by the birth rate which determines the number of people available to work, the work then determines the income and the income has to be sufficient in order to pay for the living of the people, including the people who are not able to work and have income. Demographic trends Two different discussions have to be distinguished. Firstly, there is a structural trend. Life expectancy is growing and the structure of society is changing (end of the male-breadwinner model). Secondly, there is a transitory phenomenon which is the baby-boom generation. This specific situation will change again as birth rates are going down. 1 Social Protection Systems Health Care – Ageing alone has not a very big impact on health care expenditure, as people need most of the money during the first and the last month of their lives. However, the intensity of care is changing. Long-term care is very expensive because it is very labour intensive. The possibilities for cost containment in this area are limited. Pensions – Jos Berghman recalled that pension systems are insurance systems and not savings systems. Two systems can be distinguished – funding and pay-as-you-go-systems (PAYG systems). In funding systems the money is invested over the years in order to accumulate capital that the pensioner will spend gradually. The main weak point of this system is the risk of inflation that would diminish the capital (experience of the two World Wars). In PAYG systems the pension contributions paid in one year are directly used to pay the current pensioners. The main weak point of this system is that there has to be balance between contributors and pensioners. If this is not the case, the state can either increase the contributions or cut in benefits. While the funding system is based on individual responsibility, the PAYG system is based on solidarity which makes it more open for redistribution purposes. The PAYG system has to be organized in a state structure as only a state can impose on its citizens to contribute now and believe that when they are old the new generations will pay for them. Most European countries have mixed systems that combine a PAYG system with funding elements. Three pillars of pensions can be distinguished: 1. pillar – state pension; 2. pillar – occupational pensions, 3. pillar – private pension. A general trend in recent pension reforms is to favour the 2. and 3. pillar and to diminish the first pillar. This implicitly favours people with higher income as only they can afford to have a 2. or 3. pillar. Jos Berghman advised social NGOs to work around the concept of “social cohesion” that is at stake in the current debates about pension reforms. Without social cohesion a society cannot work properly. Welfare State Models Jos Berghman distinguished between different welfare models. The Beveridgean model is based on a concept of a generalized minimum protection for everybody (eg UK). In the Bismarckian model benefits are earnings related (eg Germany, France). Originally, the main purpose of this system was to pacify labour relations as wages are negotiated between social partners and employers. Jos Berghman pointed out that the Bismarckian model is in a crisis as social partners do not represent many citizens any more. The role of NGOs becomes more and more important as they represent diversified interests and identities. A third model is the Nordic Model (eg Sweden, Denmark) where the social partners work in close relationship with the state and a lot of emphasis is put on education, reinsertion in the labour market and vocational training. The New Member States did not follow any of the Western European models but built up private social protection systems according to the recommendations of the IMF and the World Bank. However, some of the countries are moving back towards models reflecting the pre-WW II situation due to the failure of these IMF/World Bank models. The Southern European States have followed more or less the ‘continental’ model. However, their social protection systems remain less developed. Jos Berghman explained the logic of social protection systems in general. The normal way to be socially integrated is to become educated, to find a job and have an income. Social protection systems constitute a bypass to remain or become socially integrated if work is not possible, either because there is not the sufficient capacity of a person to work or there is no suitable work available. Discussion During the questions and answers session participants argued that the existing social protection systems and currently debated reforms are based on the assumption that one or even two people are working. This approach neglects the fact that more and more households have no income at all. More focus should also be put on the gender perspective. How can social protection systems be organized in order to allow both, men 2 and women, to work and have family responsibilities at the same time? The question was raised whether or not there is actually enough work for everybody who is willing and able to work. Jos Berghman presented a comparison between the United States and Europe. In the USA more people work but they also do more hours and more unproductive hours. In Europe the single working hour is more productive as only the best skilled people work while many of the lesser qualified people do not work at all. As a consequence, the USA and Europe do have comparable outcomes regarding the GDP but the USA does it in a more unequal way. Regarding the issue of best practice transfer, Jos Berghman explained that there is not one best way for all countries. For instance, not all European countries will be able to reproduce the Nordic model as it is based on a general acceptance in the population to make huge contributions to the state which are redistributed afterwards. Such a system will not work in all European countries. The financial sustainability of the Belgian social protection system Power Point presentation of Nicole Fasquelle – click here Belgian Federal Planning Bureau Nicole Fasquelle explained that the Belgian Federal Planning Bureau is responsible for analyses and projections for Belgium in three fields: economics, social issues and sustainable development. In order to calculate the long-term sustainability of the social protection system, the Bureau uses the so-called “Maltese” model. Regarding pensions, this model only takes the first pillar into account. At the international level, the Bureau reports to DG ECFIN that collects and analyses the long-term perspectives of all Member States. Other international organizations dealing with long-term calculations are the IMF and the OECD. Demographic change in Belgium and challenges for the social protection system While the total population of Belgium will still increase between 2005 and 2050, the main challenge for the social protection system in Belgium results from an increasing dependency rate (relationship between – 15 and + 65/ 15 – 65 year old people) during this period. In the past, Belgium had to deal with a very high public debt (almost 130% of the GDP in 1993). Since then, the debt has been reduced significantly. Nevertheless the debt is still about 95% of the GDP in 2005. In 2001, a law was adopted which guarantees a continuing reduction of the public debt and foresees the creation of an “ageing fund” in order to finance the demographic gap. Indeed, a reduction of the debt will give more financial means (less interest charges to pay) to finance the expected increase of social expenditure in the future. Possible future scenario for Belgium The Belgian scenario is based on a set of long-term hypotheses. The hypotheses are based on demographic indicators (eg birth rate, life expectancy, migrations), sociodemographic indicators (eg school attendance rate, activity rate, pension rate), macroeconomic indicators (eg structural unemployment, productivity growth, long term interest rate), social policy decisions (eg wage ceiling, welfare adjustement), budget policies (eg revenues, targets of net financing capacity). Nicole Fasquelle stated that there are three main problems for the social protection in Belgium in relation to its sustainability. Political sustainability – In the wage earner scheme (70% of the total number of pensioners), the calculation of the pension takes account of the earned wages but ceiled to a certain amount (the wage ceiling). This wage ceiling has not been increased between 1982 – 1998 (except for inflation adjustment) which has long-term effects on pensions that are less and less proportionate to the actual payment contributions made. Social sustainability – Due to partial welfare adjustements, there is an increased gap between on the one hand the average pensions and the average wages and on the other hand between the different pension levels according to the age of the pensioner (degradation of the replacement ratio). 3 Financial sustainability – Pension and health care expenditure will increase significantly. In Belgium, a financial effort will be necessary before 2010 in order to assure that the public debt has sufficiently been reduced and there is a budgetary surplus to guarantee the financial sustainability of the social protection system. The Belgian strategy Nicole Fasquelle explained that the Belgian state will try to reduce the public debt and feed into the ageing fund. In addition to other measures, it will try to increase the employment rate (eg increase the age for early retirement). In her conclusions, Nicole Fasquelle pointed out that the final scenario depends very much on the evolution of some crucial indicators like the productivity growth and the employment growth. Therefore, the results vary each year. Discussion In the following discussion, participants pointed out that an increase of the retirement age does not appear to be a sustainable reform proposition. Employers continue using early retirement as a mean to get rid of older employees who are perceived as being less productive as young employees. In reality, the actual retirement age is far below the legal retirement age. The political discourse of demographic change and social protection from a gender perspective Lisbon Strategy Pascale Vielle situated the discussions on demographic change and the modernization of social protection systems in the overall debate on the Lisbon Strategy. She pointed out that the subliminal aim of Lisbon is first of all to make considerable savings. This should not be forgotten when discussing possible reforms in the Member States. Demographic change and social protection systems Pascale Vielle stated that the main challenge regarding the ageing of society will be to change the relation between active and non-active people. In order to achieve this, a key issue will be to make it possible for women as well as men to reconcile a full-time work and a family life. Pensions Looking at current pension systems from a gender perspective is a possible starting point in order to discuss and question the sustainability of the whole organisation of society. In all pensions systems there is a gender gap, which is however different according to the models. The Bismarckian model is the traditional “single (male) breadwinner model”. Pensions are related to earnings and married persons (usually men) used to get a higher pension (eg 75% instead of 60%) for the (often entirely dependant) spouse. As a consequence, even spouses who did work abstained from their individual right to pensions as most of the times the 15 % of the husband were higher than the 60% of her own pension. These systems therefore structurally favour the income of the men while women often remain financially dependant. The Anglosaxon and the Nordic pension model differ from the continental model as pensions are not related to earnings but to the fact of being a resident/citizen. Nevertheless, also these systems have a gender gap because the state pension covers only the first pillar. The second pillar also is entirely related to earnings, which again indirectly penalises women who in general have a lower or no income at all. Possible reform solutions 4 Endogenous factors for reform One possibility is for people that take care of children and therefore do not participate in the labour market to get a fictive salary. This would create an individual right to pensions which creates a better equality between men and women. However, the recognition of childcare as a task that provides you with the individual right to pension reinforces traditional gender roles. In addition, the fictive salaries for people staying at home are generally far lower than for people doing remunerated work. Finally, this system does not take the problem of financing such a fictive salary into account. Nevertheless, the pension system has to be changed in order to facilitate the participation of women on the labour market. Unfortunately, current reform propositions often do not take the existing gender gap into consideration. While for instance the increase of the legal retirement age is favourable for women who had stopped to work in order to take care of children for several years, current reforms generally link this with an increase of the time necessary in order to benefit from a full pension which implicitly discriminates against women. The same is true for proposed bonus-malus systems which favours people who have been able to work more years than other people. Exogenous factors for reform Pascale Vielle emphasised that a reform of the pension system alone will not adequately address the challenges related to demographic change. A reform that is truly aiming for sustainability should rethink the way the society is organised as a whole. In order to increase the participation of women on the labour market and at the same time encourage young couples to have children, more fundamental changes have to take place. First of all, men have to be encouraged to participate much more in the tasks at home. Secondly, rather than cutting in benefits the state should invest massively in care facilities, education and vocational training in order to increase the participation of women on the labour market. Although the willingness of Member States at the moment to make such an investment is highly questionable, it should be emphasised that this investment would also create many jobs. Pascale Vielle pointed out that the discussion on “demographic change” can actually be used as a tool to promote gender equality. More and more governments will be encouraged to think about the organisation of our societies as a whole. Prospects for reform In the discussion, participants very much welcomed the approach to demographic change brought forward by Pascale Vielle. However, the prospects for the necessary investment in care facilities etc. to promote the participation of women on the remunerated labour market are not very high. In the daily political life, it is more politically rewarding for governments to propose reforms that will have an impact on the short-term rather than on the long-term. However, NGOs should work on this approach and try to network as much as possible with other stakeholders, including governments, social partners and the private sector. “Good” social policy Pascale Vielle stressed that a “good” social policy is a policy that is based on the “norm” of a single parent (most often a mother) with two children. If these people are able to have a career that allows them to be financially independent and to take care of their children at the same time, the policy is well designed. This indicator should substitute the current “norm” which is a “two-person household with one or one and a half income”. In this perspective, Pascale Vielle highlighted again the need for extensive investment in care facilities. Part-time work Although part-time work often is presented as the ideal form to reconcile family life and a job, Pascale Vielle argued that it should not be promoted as such. As part-time work does not lead to full individual pension rights, the person usually remains financially dependant on another person or on state benefits. In addition, part-time work reinforces gender roles 5 as many high level jobs are (understandably) given to people that are able to work full-time and more. Economic approach Participants also discussed whether it is useful or not for social NGOs to use the economic terminology that many stakeholders use when talking about the issues at stake, such as ‘employability’ and ‘human capital’. While all participants agreed that these words imply rather inhuman connotations, Pascale Vielle pointed out that in certain circles the use of these terminologies could help you to make you heard. However, it is necessary to work a lot on the definition of these words in order to make sure that they have an acceptable content. A current debate in which social NGOs should be involved is the discussion about the European Social Model. Evaluation of the seminar Most participants were satisfied with the seminar and stated that they have been able to develop their knowledge about demographic change and the challenges related to European social protection systems. Participants particularly appreciated having a political vision on the debate from speakers, something to bear in mind for future seminars. In addition, participants would like to have more time for in-depth discussion about the role of the EU level and possible strategies for social NGOs within this. As demographic change will remain on the political agenda also in the following years, participants expressed their interest to continue working on this issue. 3. Participant list Paul Tréhin (Autisme Europe), Maxime Cerutti (European Youth Forum), Peter Herrmann (ESAN), Nathanaël Caillaux (ATD Quart Monde), Ariane Rodert (ETWelfare), Elisabeth Muschik (MHE), Marielle Helleputte (FEFAF), Carola Lenz-von Traitteur (AWO/Solidar), Rosella Pinetti (CECODHAS), Patrick de Bucquois (Caritas-Europa), Uta Stitz (International Council on Social Welfare), Lina Pennlert (EWL), Kathleen Spencer-Chapman (Social Platform Secretariat), Silke Paasche (Social Platform Secretariat), Clarisse Delorme (EWL), Samara Jones (Social Platform Secretariat), Guiseppe Sapio (EAPN), Fintan Farrell (EAPN), Fanny Muller (MHE), Nicole Fasquelle (Belgian Planning Bureau), Liliane Cocozza (ESAN), Susanna Heinäsmaki (Eurodiaconia), Jos Berghman (K.U. Leuven), Pascale Vielle (Institut pour l’égalité entre les hommes et les femmes, Belgique). For further information contact: Silke Paasche, [email protected] Tel: +32 (0)2 508 1639 6