Policy Choices for Income Replacement in the Case of Old Age and Survivorship
Abstract In this chapter we discuss policy issues concerning pensions. We start by asking ourselves whether the social risk is reaching a certain age or no longer working. The personal scope of old age or retirement schemes is examined and the important choice between repartition or capitalization is approached in an original manner. The setting of the pension age is further examined, as are the requirements for a full pension. Other questions to be dealt with ask whether pension amounts should vary according to family composition and what state support there is for second and third pillar arrangements. We explore issues relating to the factors that determine the pension amount and the work a person is allowed to perform alongside the pension. The tension between the respect for acquired rights and the legitimate interests of younger generations is highlighted. The chapter ends with survivors’ pensions and asks why widow and widower’s pensions should be kept and if they should also beneft unmarried survivors?
Keywords Old age pensions · Retirement pensions · Survivors’ pensions · Pension age · Repartition vs. capitalisation · Pension amount · Acquired rights
Pensions have been at the heart of discussions on social security reform in most European countries. Fundamental questions have been raised and occasionally fundamental reforms have been decided upon and
© The Author(s) 2019
D. Pieters, Navigating Social Security Options, https://doi.org/10.1007/978-3-030-05992-7_1
implemented. We should not be surprised by this attention being paid to policy options for pensions as pensions represent a major fnancial burden, or if one prefers, a major investment for the social security systems of all countries. Moreover, the aging of the population combined with a falling birth rate has distorted the active/passive ratios. The question of whether pensions will continue to be fnancially sustainable in the future is often raised. The pension issue is also linked to other, broader, policy issues, not least to the issue of whether European countries should allow more immigration.
Of course, in order to answer the question as to whether pensions are fnancially sustainable, the issues relating to the fnancing of social security in general should also be addressed. This is, however, not our intention here. Let us merely observe that the fnancial sustainability of pensions, as is the case for all social security schemes, depends not only upon the cost of the benefts, but also upon the sources from which the schemes are fnanced. Moreover, not only should the current fnancing methods be considered, but new ones should also be looked at, especially fnancing methods not directly related to the income earned from work by the socially insured person. However, as we said, we shall leave these questions for another occasion and concentrate here upon the policy issues directly related to pensions.
We would like to make an analogous remark concerning the immigration issue. This question is much broader and complex than the pension issue. Let me suffce with saying that today immigration is neither the cause of the problems our pension schemes face, nor the solution to the fnancial problems of our pension schemes. Immigration is not the cause of the fnancial problems of our social security, and certainly not of our pension schemes. However, even in areas often referred to by people opposing immigration, such as child allowances, the impact of immigration remains very modest. Neither will immigration solve the demographic problem. At best, it will postpone it by several years. It is also clear that the immigration of larger groups of persons coming from a different cultural background will create some problems. These will have to be responded to by increased efforts to explain what social security is about and to integrate the newcomers, especially women of certain groups, into the labor market. Depending upon the success of this integration, pension schemes will either gain or lose out from immigration.
As said, we will concentrate on pensions. By pensions we understand all long-lasting cash transfers or all long-term benefts. These can be related to various social risks: old age and widowhood but also orphanhood and invalidity. We will restrict ourselves hereafter to old age and retirement pensions and pensions for widows and widowers. These exist in most countries, whereas orphan pensions and invalidity pensions do not exist in many countries as those countries prefer to deal with orphans in their family allowance schemes and/or cover incapacity for work by beneft schemes based on the ambition of returning to work.
We shall hereafter deal with twelve policy issues concerning old age and retirement pensions and/or widow and widower’s pensions1:
• Old age or retirement: what is the social risk?
• Who should be covered and how?
• Repartition vs capitalization
• The pension age
• Requirements for a full pension
• Pension and the family unit
• The pension amount
• Working with a pension
• Acquired rights, rights being acquired, and the younger generations
• Why keep widow and widower’s pensions?
• Should widow and widower’s pensions also beneft non-married survivors?
• Which state support for second and third pillar arrangements?
1 old age, retirement: What is the social risk?
Let us start with the rather strange question: what is the social risk of old age? First of all, reaching a certain age can hardly be seen as a risk. What is more, it is not even clear which eventuality we aim to cover with our old-age pensions (in a broad sense). The social risk of old age is indeed more diffcult to describe than would appear at frst sight. By
1 Present considerations are partially based on earlier work, such as Pieters, D. and Schoukens, P., Social Security Quo Vadis? Interviews with Social Security Administrations CEOs in 15 Western European Countries, New York: IBM Global Social Segment—IBM Corporation, 2007.
and large, the risk consists of the assumption that it is no longer possible or suitable for a person of a certain age to work in order to make his or her living. Hence social security’s provision of income replacement for people attaining a certain age limit (old-age pension) or for people who terminate their professional activity after having reached a certain age (retirement pension). We thus basically distinguish between old-age pensions in the strict sense, with respect to which entitlement depends on attaining a specifc age, and retirement pensions, with respect to which stopping work is crucial and one is able to stop working from a certain age. Traditionally, old-age pensions in the strict sense are associated with universal schemes and people’s pensions, as we know them in Scandinavian countries, the United Kingdom, and the Netherlands, whereas retirement pensions are typical for professionally based social insurance schemes. It is indeed logical that if work does not play a role in being socially insured (but merely residency), then stopping working or not working will not be relevant. Likewise, when you are socially insured because of your work or because of your professional category, then it is logical that ending this work and thus retiring from the active population, opens up pension rights. Yet we establish that this logic often seems to have been abandoned: even in old-age pension schemes in the strict sense, the possibility of cumulating work and pension will sometimes be restricted, and in many retirement schemes the continuation of work after a certain age does not exclude pension entitlement. We will return later to the policy options available for working while receiving a pension. For now, let us suffce in establishing that the traditional choice between an old-age pension in the strict sense, and a retirement pension approach has become somewhat blurred. So in the end we are left with the question of what it is that we are actually covering as a social risk with our pension arrangements.
2 Universal or Professionally Based? Pillars? comPUlsory or not?
Any pension scheme has to make a choice regarding its scope of application and its compulsory character. Most statutory pension schemes will be compulsory and cover the whole population (so-called people’s or national insurance schemes) or cover only the working population, or certain groups of working people. It is obvious that a national insurance scheme will require a certain
period of residence before granting an old-age pension, whereas the professionally based social security schemes will determine pension entitlements on the basis of the number of years of participation in the pension arrangement. The disadvantage of a professionally based pension scheme option is obviously that people may change profession and change from one scheme to another during their active life. Moreover, they may simultaneously carry out activities falling under different professional social insurance systems, and the calculation of the pension(s) will then be more complex.
Usually, statutory pension schemes are compulsory, as they require a solidarity system to be operative.
Here we focus mainly on statutory pension schemes. Old age risk is often covered on the basis of the so-called three pillars: the frst being a statutory insurance scheme (compulsory or not), the second being participation in pension schemes laid down in a collective arrangement (compulsory or not), and the third being individual private pension arrangements. Obviously, when the frst pillar is less developed, the second and third pillars will increase in importance, and vice versa. The conditions and amounts prevailing in the second pillar will sometimes be grafted directly onto those present in the frst pillar. Such a situation can pose serious problems for these collective social insurance arrangements should any changes arise in the statutory old-age social insurance scheme. This will be the case, for instance, when the collective arrangement grants its participants full cover for old age (statutory pension + collective arrangement pension) constituting a certain percentage of the most recently earned wage, and when the amounts of the statutory pensions are reduced. However, these arrangements have now been dispensed with as they were presenting too many risks to the second or third pillar arrangements.
There might also be stratifcation within the statutory social insurance pension, viz. the existence of both a universal basic pension covering the entire insured population and a social insurance pension on a professional basis. However, in such cases the integration of the basic pension into the pension of the professionally arranged social insurance scheme poses fewer problems.
The participation in second pillar pension schemes may be made compulsory by the collective agreement establishing the scheme or by law. Participation in the second pillar arrangement may also be facultative; participating in a third pillar scheme will in principle be voluntary.
3 rePartition vs caPitalization
The pension scheme can operate based on the capitalization/funding principle, the repartition/pay-as-you-go principle, or bookkeeping reserves. Some statutory pension schemes operate on a mixed basis: partially with repartition and partially funded. Sweden, for instance, has reformed its statutory pension schemes in order to give them a mixed character, with the larger part remaining on a repartition basis, and a new, albeit smaller part, based on capitalization.
In a number of non-industrialized countries, the old-age pension may take the form of a once-only payment on reaching pension age. However, we will deal, as a rule, with periodical payments.
We can defne a pay-as-you-go or repartition-based approach briefy as one where current contributions serve to pay present-day social security benefts. Only a few statutory compulsory pension schemes operate by capitalization or in a funded way with current contributions serving to fnance the benefts to be paid later to the people having paid contributions. Complementary private insurance schemes, pensions in the second and third pillar, generally operate on the basis of funding. In some countries, social security works with personal savings accounts, which can be used for different social purposes, such as purchasing a home, covering health care costs, life insurance, etc. These personal savings accounts can also be perceived as an extreme form of capitalization.
Within the category of funded or capitalized pension arrangements, we may distinguish between those based on defned contributions and those based on defned benefts. When you have a defned beneft pension scheme, the contributions to be paid will vary over time in order to maintain the intended beneft. In the case of a defned contribution pension scheme, the fnal pension will vary depending on the duration of participation, the profts or losses made while investing the funds, and the administrative costs of operating the scheme. Today, second and third pillar schemes are mainly based on defned contributions.
There have been heated debates about the pros and cons of funded vs repartition-based pension schemes. In the last decades of the twentieth century, there was strong pressure to move away from repartition and go for (more) capitalization. The private sector strongly promoted the funded approach, stressing the risk that in the future repartition-based pension schemes would no longer be fnancially sustainable. Until the crisis of 2008, it was also easy to demonstrate that the returns of the
contributions for capitalized schemes were much higher than what you could get for your contributions in a repartition-based arrangement.
Moving from a capitalization or funded system to a pay-as-you-go or repartition system does not pose any special problems. The opposite though is much more diffcult, as it implies that after the transition the active population would have to pay both for current pensioners (who themselves lived under repartition) and for their own pension later. Such a transition from repartition to capitalization therefore only seems feasible after the (real or virtual) bankruptcy of the existing repartition system and/or when (foreign or international) loans make it possible to cover the entitlements gained under the previous repartition system. The introduction of a capitalized or funded scheme alongside a repartition-based scheme is easier and has been done in a number of European countries.
The capitalization system, like certain forms of repartition, such as the two examples mentioned above, will generally involve the foundation of a fund through which the means of the social security system will be collected and managed. Evidently, the more means such a fund contains, the more infuence it will wield on the fnancial markets. A repartition system does not particularly need such a fund as it can do with some circulating capital, a certain supply of money available to meet claims (at present) more or less smoothly. A major advantage and at the same time disadvantage of a funded scheme is the consequence: in a capitalized approach there is an accumulation of funds, which can be used by the funds, for instance to stimulate the economy or to exercise economic power. However, at the same time it means that the fund can be hijacked by its administrators or government, who use the funds for purposes other than guaranteeing future pensions. The latter has unfortunately been experienced recently in some Central European countries.
Yet many continue to believe that a capitalization/funded pension scheme is safer than a repartition-based scheme as it would guarantee a person’s own pension better, distrusting the reliability of later generations to pay for this repartition-based pension in the future.
What is certain is that the future is always uncertain. Moreover, when a system has already existed for a number of years, the means brought in by the active participants in a funded scheme will in reality also be used in the frst place to cover the benefts paid out to the retired participants. What, then, is the real difference between capitalization and repartition?
In a capitalized or funded approach the benefts paid out later will depend on the development of the (mostly global) fnancial markets, whereas in a repartition or pay-as-you-go approach, the future benefts will follow the evolution of the wages in the (domestic) labor market. There are two remarks to make with respect to this. First, if it is clear that we cannot obtain certainty about our future (replacement) income when we are old, neither in a repartition nor in a funded context, we may prefer to spread the risk and to “put our eggs in different baskets.” In other words, a combination of repartition-based pension with a funded pension, may be the safer option. The second remark takes the form of a paradox: the distinction between a repartition-based pension scheme and a funded pension scheme is important as long as it remains unimportant. What we mean by this is that the heated discussions about the advantages or disadvantages of one approach over the other will be relevant as long as the results of the choice for one approach do not extravagantly differ from the alternative. Suppose, for instance, that we have a funded pension scheme, but due to external reasons the built-up funds have disappeared. In such a case would the government tell the elderly they are unlucky and will have to do without a pension? We think not. In such a case the government would probably introduce a repartition-based pension scheme immediately, as was for instance the case in Belgium after the Second World War. Suppose on the other hand that we would have chosen a funded pension scheme and the (international) fnancial markets do extremely well whilst at home the labor market is in bad shape with high unemployment and deteriorating real wages, this would normally result in extremely good pensions compared to the wages of the active population. It is rather evident that in such a case the political authorities would intervene to stimulate employment and increase the incomes of the active by, for instance, levying higher income taxes and social security contributions on the high, funded pensions. Should the political authorities not intervene, market mechanisms would still probably play a role as the goods and services that pensioners would purchase would increase in price, pushing up the wages of those professionally active persons delivering the services and goods. In other words, there is a difference between a funded and a repartition-based pension approach, but at the end of the day, political decision makers and the market will ensure that there remains a reasonable relation between the incomes of professionally active people and those of pensioners.
4 the statUtory Pension age
Many countries have recently adapted, i.e., raised the age at which people could take up their statutory pension. By the end of the twentieth century there seemed to be a kind of natural convergence towards a statutory retirement age of 65, as most countries raised the pension age for women to that for men and as very early retirement ages in South and Central Europe were gradually raised. In the twenty-frst century though, the trend has been to reform pension arrangements in order to raise the statutory pension age to 67 or even 70 years, mostly by gradually increasing the existing statutory pension age. This is seen as a good way of curbing the increasing cost of pension arrangements, as ever more people live longer and thus beneft from their pensions longer.
This calls for two somewhat opposing remarks in relation to the raising of the pension age. On the one hand, one should wonder why the age of 65 ever became the statutory pension age in the frst place. This dates back to the nineteenth century: when a worker had exceeded his normal life expectancy by far and was unable to work any longer, it was considered to be a waste of money to have this worker medically examined to assess his invalidity and thus establish whether he qualifed for an (invalidity) pension. This age was 65! Today this would be over 80! Raising the pension age to 67 or 70 should therefore not come as a surprise. On the other hand, social security systems and thus also statutory pension schemes, aim to provide security to people when major eventualities occur. It is part of the social contract between the citizen and the state that the latter would ensure that the citizen or worker will receive a decent income replacement—a pension—in their old age. Since the end of the twentieth century people all over Europe could consider a pension at 65 as being part of that basic contract. Changes to this basic contract should be introduced carefully so as not to undermine the population’s confdence in the social security system, in casu in the statutory pension scheme.
In some countries, people can retire before reaching statutory pension age, albeit by sacrifcing part of the pension to which they would have been entitled if they had continued to work until the statutory pension age. This reduction is usually a certain percentage of the pension to which a person would have been entitled, per month or per year had they continued to work. Conversely, there might also be a bonus for those people retiring several years after the statutory pension age. This bonus might consist of a certain percentage more per year of extension
but it can also simply be that the years between reaching pension age and the actual taking up of the pension beneft are accepted as participation years (e.g., qualifying towards the minimum number of years to open an entitlement).
Recently, some statutory pension schemes have also taken into account the age of the retiring person in a different way: the amount of the pension is established according to the life expectancy at the moment of retirement. The life expectancy is not established on an individual basis (e.g., according to health), but for the whole population. In general, the difference in life expectancy between men and women is left out of consideration.
Reaching the age of retirement often constitutes a turning point in the life of the person in question. From one moment to the other, their way of life and how they spend their days drastically changes. No wonder that some research shows a higher mortality and a higher morbidity in the frst year of retirement, at whatever age that is. It is therefore remarkable that more has not been done to promote a smoother transition from active life to retirement. This can be achieved amongst other things, through the instauration of part- or half-time pensions, as some countries have tried.
Raising the statutory pension age also affects other social risks. It is self-evident that not only unemployment might increase as a consequence, but the number of people incapacitated for work might also increase signifcantly. It will therefore be of the utmost importance that an increase in the age of retirement is accompanied with measures to increase the employability of elderly workers, to adapt the work to be performed by elderly workers to make it really workable, and to relax working conditions for the elderly by, for instance, granting them more fexibility as to their working hours or through the provision of a greater holiday entitlement.
5 the reqUirements for a fUll Pension
The amount of old-age pension can either be established as a fxed amount or be related to the previously earned professional income. The former will generally be the case for the old-age pension stricto sensu, whereas the latter will mostly be the case in retirement pension schemes.
As far as the old-age pension established as a fxed amount is concerned, the basic amount may either be determined for the sake of
political expediency or be based on external factors. As far as income related old-age pensions are concerned, such a relation to previous earnings can obviously be established in diverse ways.
Entitlement to the old-age or retirement pension and the corresponding amount of money both depend directly upon the number of years in which the person has participated in the scheme, the time span of his or her working life, their length of residency, their periods of insurance, their payment of contributions, and any other years that are accepted as years of participation.
Obviously, length of residency is especially relevant in universal schemes covering all inhabitants, while a person’s employment history is particularly important in schemes with a professional/occupational basis.
The condition for receiving the full old-age pension will usually be that the years of participation amount to a complete professional career, generally some 35–50 years. A proportional share of the pension will be granted to those persons who do meet the minimum number of years of participation to be entitled to a pension but who fail to reach the necessary years of participation for a full old-age pension. Some countries have no minimum years of participation and open entitlements to a pension from the very start. In other countries minimum durations of up to 20 years can be found. The longer the minimum period for qualifying for a pension, the more important is the question of what happens when the minimum is not reached. Is the person concerned left with no rights or is there some form of compensation, such as a refund of the contributions paid by the worker?
In many countries certain periods in which a person did not comply with the general conditions of residence, labor, insurance, or contribution record are not completely disregarded. These periods will (fctively) be deemed to meet the conditions and are therefore taken into account. Sometimes, a number of fctive years are simply handed out as a bonus on top of the actual years of participation. The use of such fctive years, which is motivated by all sorts of social considerations, is sometimes made dependent on meeting additional conditions. Years of studying after a certain age (e.g., the age of majority), years of staying at home to take care of one’s young children, years of military service or being a prisoner of war, years of imprisonment or political exile, and years of sickness or unemployment may all induce the allocation of fctive years, albeit sometimes on the condition that a contribution is paid later relative to these periods. Obviously, recognizing fctive
periods can contribute to pursuing special social goals with such practices. Nevertheless, taking into account numerous fctive years can be an impediment to both the logic and the fnancial balance of a pension scheme. The fnancial burden can be alleviated or lifted by making people other than the person concerned or his or her employer pay contributions corresponding to that period. As such, the state or the social security institution can be involved as a debtor paying social security contributions for the pension scheme. Yet quite often fctitive years are being introduced without consideration of their fnancial impact as this will only appear after twenty or thirty years. It allows politicians today to take social measures, passing the bill on to future generations.
In some countries, general provisions on the age of retirement and the number of years of participation will be set aside for those persons deemed to have carried out particularly heavy, dangerous, and age-related professional activities. Miners, ballet dancers, pilots, policemen/women, warders and professional sportsmen/women, for instance, will thus often be able to enjoy an old-age pension at a much younger age and after a rather limited number of years of participation. In a few countries, the same goes for women who have given birth to a number of children. The aforementioned categories may then not only be eligible to enjoy having fctive years of participation taken into account, but may also sometimes be favored directly, by being granted more favorable conditions relative to age and years of participation. These exceptions may be highly appropriate, but one should invoke them with prudence as they could end up as real privileges for those groups who succeeded in gaining the qualifcation of performing a heavy or dangerous job.
Finally, with regard to the conditions regarding the length of an individual’s working life that affects his or her eligibility for a full pension, we observe that there is currently a trend towards converting what used to be conditions expressed in years or months into weeks or days of work. This technical change aims to take better account of part-time work and to include more atypical work patterns. This may especially beneft female workers.
6 Pensions and the family Unit
In many countries, the amount of the statutory old-age pension also depends on the number of people considered to be dependent on the person entitled to the pension. When the benefciary has a partner or dependent children, the amount of the beneft will be higher than if he
or she is single. When the benefciary is cohabiting with a partner who has his or her own professional income or an income replacement and is therefore not dependent on the benefciary, the amount might even be lower. However, the basic pension amount might also be the same for everyone. In such a case special allowances may be added to cope with family charges.
However normal this differentiation in the pension amount according to the family situation may be considered in some countries, in other countries it is considered to be very strange. These latter countries observe that it would not be acceptable for an employer to pay one wage to a worker with a dependent spouse and a different, lower wage, to a worker without a dependent spouse. This would obviously amount to discrimination and would, moreover, affect many more women than men. The basic principle is equal pay for equivalent work. So how can we explain that the amount of the income replacement, the pension that a person receives at the end of his or her working life depends upon whether or not he or she has a dependent spouse? Countries paying sole breadwinners a different pension than that paid to others stress that pensions are part of the social security system, a solidarity system, and thus have to prioritize those most in need of protection. These countries argue that the differentiation is socially justifed because a family unit needs more fnancial support than a person who only has to take care of him or herself, and a family unit with two pensions is fnancially stronger than one with only a single pension.
There still remains another delicate issue regarding the relationship between professional pensions and the family. Today, society expects both partners living together, whether or not they are married, to contribute to the work that has to be performed at home and to earn an income from work. Often this will mean that both partners have a job and share the work at home. It may also be that one partner works less or even not at all, to allow his or her partner to be more professionally active and earn a better income from work. In this case, the frst partner will take on a larger part of the (unpaid) work at home. So far, so good, as long as both partners stay together and enjoy their pension(s) together. However, the decisions to share various work activities within the family unit, take on a special signifcance when the couple separates. Pension entitlements will have been built up for the personal account of the partner who performed the remunerated work while the partner who took on more tasks at home and who performed no or less paid work
will be left with a much weaker (or no) pension record! We ask ourselves whether this is still acceptable today, especially in the light of the fact that the pattern according to which a man and a woman get married and have children and the marriage ends by the death of one of the spouses has become the exception rather than the rule. Still, our social security systems seem to consider such pattern as the default. Is it not time for our statutory pension schemes to start refecting social reality more closely? A couple, married or not, constitutes an economic unit, a household, in which a series of activities, at home and outside, have to be performed. The partners distribute these tasks between themselves according to their abilities, skills and preferences. Some activities are remunerated and therefore recognized as work by our social security systems. The income from these activities benefts the household, just as do the unpaid activities that are performed. So why not establish individual pension accounts based on the totality of the income from work generated by the two partners, divided by two. If we did so, the partner having performed the most unpaid work, very often the woman, would no longer be the victim of pension conditions that do not take unpaid work into account. Moreover, when calculating retirement pensions in this way, we could easily abolish most of the survivor pensions. More about these pensions later.
7 the Pension amoUnt
When the old-age pension is a fxed amount, the pension amount can be fxed in accordance with what policymakers consider to be fair as well as feasible. Nevertheless, the determination will often be linked legally to a number of parameters as well. The minimum wage, average wage, or average professional income may be referred to for instance. One can also refer to data related to purchasing power.
When the amount of the old-age pension is determined based on previously earned income, the relationship between both variables can be established in different ways. The following data can provide a basis of calculation: the latest wage or earnings, the wage or earnings during a specifc period (e.g., fve years) preceding actual retirement or attainment of pension age, the wage or earnings during a specifc period (e.g., three years) to be chosen by the party involved within a time span (e.g., fve years) preceding retirement or attainment of retiring age, or the wage or earnings spread over the entire length of participation in the pension
scheme. Most often only the earnings on the basis of which contributions were payable will be taken into consideration. In recent years, we can observe a trend to taking longer periods of earnings into account, for instance the average over not the last fve, but the last twenty years. It is self-evident that the more restricted the periods of earnings to be taken into consideration are, the more benefcial it will be for the pensioner, but the more expensive it will be for the pension scheme.
The basis of calculation will on average be higher when only the last period of professional activity is taken into account rather than all the years of participation in the pension scheme. This even holds true when the basis of the calculation is re-evaluated from year to year in order to take into account the depreciation of the currency throughout the years, since (real) earnings will in most countries be relatively higher at the end of working life than at its beginning or middle phase.
In some cases, the relationship to income does not or not really apply. This is the case when the old-age beneft is calculated based on the contributions paid earlier and when the latter themselves are not related to income, or when the correctness of the paid (in principle income-related) contributions cannot be checked.
Some pensions are completely unrelated to earnings and are instead calculated purely on the basis of the amount of contributions that have been paid. This will generally be the case for pension schemes operating on the basis of capitalization. Here the pension amount will be determined on the basis of the profts/losses made from investing the funds after deduction of the expenses of running the scheme (possibly plus a margin for the private pension carrier). We have already mentioned the two options that are available here: defned contribution with a variable pension amount, or the exception today of a variable contribution but defned beneft.
In most schemes, minimum and maximum amounts have been fxed for the full old-age pension, be it directly or indirectly (notably by capping the earnings included in the calculation bases). The minimum pension is granted to anyone who has worked a full working life (or meets the minimum number of years of participation needed to acquire a right to an old-age pension) and whose old-age pension, when calculated according to the normal rules would not reach a certain fxed amount. As for the maximum pension: this ensures that anyone who would be eligible for an old-age beneft that exceeds a certain maximum limit when calculated in the usual way, will have their old-age pension
leveled down to that upper limit. Minimum and maximum pensions thus redistribute funds to the beneft of low-income pensioners. This is certainly the case when contributions are paid on the total income actually earned. The use of minimum and maximum amounts of pension is, however, not without its risks. Setting the minimum income at a reasonably high level could form an incentive for people to underdeclare their income from work, as the minimum pension will be paid anyhow. This danger may be especially present in pension schemes for self-employed persons. Having rather low maxima for the pensions may undermine the offcial income replacement percentages, making income-related pensions for both the higher middle and higher income classes almost fxed sums, creating a disincentive to pay more contributions and thus creating an incentive for underreporting income from work (as additional contributions do not raise the pension amount). In some countries with professional income-related pension schemes, such as Belgium, the minimum and maximum pension amounts have become so close that the system is gradually starting to resemble a fxed-amount beneft system.
Let us observe fnally that most statutory pensions, once their amount is established, will be adjusted later to any increase in consumer prices (indexation). If this is not the case the real value of the pension benefts will decrease the longer these benefts are received. When infation is high and there is no correct and timely revaluation of pensions, this can lead to their complete erosion.
8
Working With a Pension
As stated earlier, the granting of an old-age pension stricto sensu is in principle linked to the mere reaching of a certain age, whereas the granting of a retirement pension stricto sensu depends upon the person’s discontinuation of his professional activity. The latter will not as a rule be allowed to perform work after the award of the retirement pension and certainly not if it is paid work.
Both approaches to the question as to whether a person can continue to work or take up new paid work after obtaining a pension, need some nuancing. Although the old-age pension in the strict sense is in principle not interested in whether the person is working or not, we can see that in a number of countries having such pension schemes, incentives will be built in to encourage workers to stop working or at least to stop their usual (full-time) employment. Usually these incentives will take the form of
conditions to obtain all kinds of additional benefts with the basic amount of the pension not being affected. The earlier rule in the Danish people’s pension is interesting as it only restricted income from work during the frst three years of receiving the pension, with there being no restrictions at all after this period. This created an incentive to quit the usual job, while allowing the person to perform other paid work at a later stage.
Also, retirement pension schemes did not follow through their own logic, creating some room for permitted labor, or in other words, the kind of work that may still be performed by the person enjoying a retirement pension. This will mostly involve declared non-paid labor (volunteer work) as well as work performed in return for the payment of a minor reimbursement of expenses. In some countries, the scope of permitted labor is formulated as an amount that may still be earned by the person enjoying a retirement pension while retaining the pension in question. If earnings exceed this amount, the pension may be withdrawn or reduced, depending on the pension scheme concerned. In some countries that in principle pay a retirement pension, legislation has recently allowed all remunerated work to be cumulated with a pension, making the borderline between a retirement pension and an old-age pension in the strict sense very thin.
Evidently, the condition of discontinuation of paid labor can only be stipulated reasonably when the amount of the retirement pensions granted suffces to enable the party entitled and the people depending on them to live a decent existence. Whether this is why we see a trend to allow ever more remunerated work to be cumulated with retirement pensions is an open question. Mostly this liberalization is justifed by the aim of activation, stimulating people to continue working.
9 acqUired rights, rights Being acqUired, and the yoUnger generations
Between the start of building up pension rights and the actual entitlement to an old-age or retirement pension up to forty years may elapse. In such a period many things may happen not only in someone’s personal life but also in society. Both at a personal level and at the level of government and policymakers, this means that when taking decisions today about future pensions we have to look many decades ahead. We have already pointed to the danger that policymakers today may take socially popular measures, passing on the bill for these measures to the
decision makers some decades later. Even if these aberrations do not take place, no country or government can guarantee that they can maintain a pension scheme unaltered over the whole period in which pension rights are being acquired. It is not always even possible to leave already acquired pensions untouched. The question thus arises as to what extent are pension entitlements and legitimate expectations of the future pensions protected against legislative changes.
The respect of acquired rights and its limits forms one of the most interesting issues in social security law, and in pension law in particular. These acquired rights will mostly denote not only entitlements to social security benefts to which there is already a subjective right but also the legitimate expectation of the later entitlement to a beneft. Let us observe that the question is not restricted to changes in statutory schemes. Let us, for instance, remember here the pressure exercised by many second or third pillar schemes operating defned benefts schemes guaranteeing a fxed rate (e.g., 80%) of the fnal income after integration of the statutory pension. When the legislator decided to lower statutory pensions, the second and third pillar systems needed legislative intervention so that they did not have to bridge the widened gap with the statutory pension, and thus to get rid of the promised 80% replacement.
Let us now examine to what extent such acquired rights are protected against changes in the social security law in which they are grounded. The legislator is free in principle to revise earlier legislation, and this goes for social security as well. Nevertheless it is quite salient that changes to social security arrangements will mostly have to be gradual. In addition they will mostly be realized with the greatest caution. Often long transition periods will be provided and rights acquired under previous legislation will be preserved temporarily while revisions will only apply to new cases. Furthermore, in some countries rights being acquired—for which the insured person has paid contributions—will enjoy legal protection under constitutional provisions relating to the right to property or the respect for legitimate expectations. International, constitutional, and other courts may play a role in protecting pension entitlements and the legitimate expectations of a future pension. They will do so most often when confronted with a concrete reduction (or even suppression) of an actual or expected pension amount. The problem which may then arise is that a court will be handling a social policy issue in terms of a concrete, individual case. The court may, however, not always be well equipped to make the right policy evaluation. In fact, many courts are conscious of
their own limitations and will show great respect for social policy decisions taken by political authorities.
So the question remains for policymakers as to what extent do we have to protect acquired pension rights and pension rights in the way of acquisition against later policy changes. This question is related to the broader issue of intergenerational solidarity. Until the end of the XXth century the topic of intergenerational solidarity referred in the frst place to the question of to what extent future generations will still be ready to honor the (pension) commitments made to the actual working generation, but today the question of intergenerational solidarity is also posed in the opposite direction. Many social security reforms, especially those relating to pensions, that have been carried out recently or that are currently being envisaged, show extreme respect for acquired rights and also try to preserve all kinds of privileges for those still of working age but who are older than say 40 or 50 years of age. No reform should in any way harm them. Such an approach is not seldom paid for by younger generations, who are asked to maintain solidarity in order to preserve all these acquired rights and vested expectations, and to be less reliant upon statutory pensions and to take more care of their own pension arrangements later (in second or third pillar arrangements). It would be appropriate to refect on intergenerational solidarity from the perspective of the burdens put upon younger segments of society as well. In some European countries, pension reforms seem to have inequitably hit younger generations, which in some twenty or more years could end up as the next generation of elderly people living in poverty.
10 Why do We Pay WidoW/WidoWer’s Pensions?
In a society maintaining a clear-cut distinction of tasks between husband and wife—the man working outside the house, the woman being a housewife and a mother—the loss of the only source of family income, namely the husband’s earnings, cannot but cause an important need for social protection for the relative(s) left behind. However, in a (more modern) society where everyone—including both partners in a marriage— is expected to work for an income for themselves and their family, the death of the spouse does not give rise to a great need for special social protection other than to help a person through the initial period of adjustment to the new situation. Obviously this can be objected to by saying that one of the partners can still choose to do the housekeeping.
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desirable for the striker’s ball to occupy. In this case the cannon should be made dead full on ball 3. Ball 1 will be stopped comparatively dead, and will occupy the other’s place, which is what is required.
It follows from this that in the event of ball 3 being close to a cushion or in some other undesirable place, the opposite method should be employed, and the full ball cannon avoided.
There are cases, of course, when it is desirable to cannon full on a ball touching or nearly touching a cushion, with a view of utilising the kiss, but this is not the class of stroke under discussion.
The main point it is hoped the previous remarks may convey is, the great importance of leaving the striker’s ball in a commanding position. The player’s attention is called to this as one of the chief points to be considered in this class of stroke.
Reference will be made in the diagrams to this method of play.
In conclusion, one word of warning. On arrival at the top of the table do not straightway become a player with one idea—to stop there.
Remember that a little exercise ‘in the country’ is often required, and often more profitable than a risky attempt to prolong the stay ‘at home.’ The return home is by no means hopeless. Not only is there every chance of it if a man is in good form, but under any circumstances no undue hurry should be shown to get position either for the spot or for play at the top of the table. It is better to plod along quietly with long losers and ordinary strokes till a favourable conjunction of the balls presents itself than to risk failure by attempting to get immediate position by means of complicated strokes full of compensations. No doubt if they come off successfully the triumph is great, but the method is unsound, and will not bear the test of time; it will fail far oftener than the less ambitious mode, which waits a bit on fortune, instead of trying to force her favours. It is usually the comparative novice who is in the greatest hurry—‘Chi va piano va sano, e chi va sano va lontano.′
Probably the most favourable open position for commencing the top-of-the-table game is when the red is on the spot, the striker’s ball in position for an easy spot hazard, and the opponent’s ball in close
proximity to the red, above or below it, and more or less in the central line of the table. We may borrow a French expression and call this position the position mère. This position in the hands of an expert is most prolific, admitting as it does of a system of play consisting ideally of alternate winning hazards and cannons, but varied by ‘nurseries’ and incidental play. The great feature of the modern game is to obtain and regain this position mère.
The diagrams that follow are given with a view of illustrating some of the commonest methods of leading up to this position and suggesting others.
In supplementing previous remarks the student’s attention is invited to the importance of being constantly on the look out for an opportunity of playing the opponent’s ball spotwards when there is a probability of the succeeding stroke being a red winner. Even in the event of a red loser being left—instead of the winner as intended—the opponent’s ball can hardly occupy a more favourable position, as the balls probably can be gathered at the top of the table in the course of a stroke or two.
It will be noticed that in the examples given the play recommended is of the simplest and most natural description, calling for a little forethought, but for little or no execution. They also in nearly every case represent the simplest way of leaving a break even to a player who is not a proficient at the top of the table.
Diagram II.
Remember to be full on ball 3 with the view of stopping your own ball.
Compare also Diagram p. 177.
Diagram III.
Play half-ball on the red, driving it towards the right-hand top pocket. Full on ball 3 to stop your own ball and drive it spotwards. With ball 2, the white ball, be careful not to play too hard for fear of losing it.
Diagram IV.
Half-ball on ball 2, sending it spotwards, nearly full on ball 3, which will stop your own ball and leave it near the pyramid spot.
Be careful to be fine enough on ball 2 to keep it at the top of the table; a half-ball would bring it down the table out of play.
Diagram V.
Diagram VI. (I.) Make the loser off the white, driving it spotwards. (II.) Hole the red, and get position either by the slow drop or off the top cushion, preferably the latter.
Diagram VII. (I.) Make the loser off the white, leaving it near the spot. (II.) As in previous diagram.
Diagram VIII. (I.) Make the white loser gently. (II.) Hole the red as before.
Diagram IX.
Screw back on to the white, bringing the red round. With the white as object ball, care must be taken in this class of stroke not to hole it in the top pocket.
Fig. 4. Play to cannon full and slowly on ball 3, leaving the red winner and\white near the spot. With balls 1 and 2 further apart, the strength would be too difficult to play as here given, and the play would be as in Diagram No. I.
Fig. 5.—Play the white spotwards and be full on the red.
The diagrams and remarks just given having led us up to the top of the table, those that follow will attempt to illustrate on broad lines some of the play when there. Niceties cannot be touched upon, and it is thought more convenient to give individual strokes of common occurrence rather than the consecutive strokes of a break.
In some cases the stroke given might be played differently, in order to collect the balls for nursery cannons; but as the diagrams are intended to illustrate the more open game, the position for nurseries will not as a rule be taken into account. In other instances the stroke given admits of different treatment from that shown, the choice being frequently determined by the player’s preference for a particular class of stroke. The chief aim of the diagrams is to suggest ideas.
Fig. 6. Play ball 2 behind the spot, cannon full on ball 3 (the red), leaving\the winner, which when made with a stab leaves the position mère. Guard against losing the red first stroke, in which case the break would very likely be lost.
A common fault in playing at the top of the table consists in endeavouring to bring the balls together, when the better game would be to leave them farther apart. In playing to bring them together a dead cover often results, very possibly bringing a promising break to a close. Of course in many instances to bring them together would be the game, but frequently it is not, and the reader should be on his guard against the above-mentioned cause of breakdown.
7. Hole ball 2 (the red), and get position for a cannon either by the\screw back or stab follow.
Fig.
Fig. 8. Play a three-quarter ball on ball 2 (the red), dropping gently on\ball 3, in such a way as not to interfere with the red winner to follow.
Fig. 9. Remember to make use of the screw back in these positions.
Fig. 10. Drop very gently between the balls; when making the second\cannon, push through and get above them.
Fig. 11. Practise these strengths till you are sure of them.
Fig. 12. White spotwards and leave red winner.
Fig. 13. Play here to cannon, and leave the red winner, barely disturbing\the white.
Fig. 14. Play very fine on the white so as not to disturb it. Avoid the run\through in this very useful class of stroke.
Fig. 15. Gently here to leave red winner. Forefinger bridge. Better than\trying to bring them together. This is a stroke which requires some delicacy of execution; it should be practised till the red can be left near the corner pocket with certainty.
Fig. 16. Push dead full and slowly, bringing the balls together for nurseries.\There must be more than the diameter of a ball between ball 3 and the cushion. The stroke is often assisted by pushing ball 1 on the left side, which ensures its free escape from the squeeze between cue-tip and cushion.
Fig. 17. Study the position with the opponent’s ball on either side of the central\line of the table. In the one case when it lies on the player’s side, hole the red by the slow drop, stopping about B. In the other case play freely off the cushion to A.
Fig. 18. Play rather fine on both balls, and come back a little way up the\table. In playing this class of stroke, the object being to send ball 3 to the spot and leave red winner, it is often useful to employ side, which taking effect from the cushion after the cannon is made, enables the player to keep near the object ball or away from it, as desired. The stroke can hardly go wrong.
Fig. 19. Red touching cushion 1. Play slow, kiss cannon, leaving red winner.\Not too full on the red.
Fig. 20. In this sort of position, the game is to cannon and drop slowly and\full on the red. A screw back cannon the next stroke played with good strength will probably permit of the top of the table game being continued. The strength for the return of the object ball, whether off one or more cushions, must be constantly practised. It varies considerably on different tables, and possibly with the weight of the balls.
Fig. 21. There is no better practice for touch than these slow screws off a fine\ball; played off too thick a ball or too hard the break is lost at once. The object, of course, is to play the red over the top pocket for the winner and cannon slowly on the white.
