EUROPEAN PAPERS ON THE NEW WELFARE » Paper No.4 / 2006

Though a country in transition, Romania already faces the same problems as the developed countries: the ageing of the population, a low fertility rate and a long period of transition from a state controlled economy to a market economy. The ratio of beneficiaries, including the farmers, to contributors is almost 100%, similar with developed countries.
In 1989, the year when Romanians threw out the Ceausescu communist regime, Romania had a PAYG pension system which covered all the employees.
In the following years, the system was abused and a lot of employees took early retirement instead of unemployment. for social protection reasons, the benefits provided by the pension law issued in 1971 were modified several times.
But in 2000 a new law (Law no. 19) for the public pension system was approved by the Parliament, which introduced some reforms in the system: a slow increase of the retirement age, for women from 57 to 60 in 2014 and for men from 62 to 65 also in 2014. both for men and women, the number of years of contributions, in order to qualify for the minimum pension, was raised from 10 to 15 years in 2014. The full contribution periods have increased to 30 years for women and 35 years for men, both in 2014. The pension for old age was established based on the contributions paid during the whole active life and not linked to the salaries in the last 5 years of activity: each year the contributor received a number of points as a ratio of her/his salary and the average national salary, established by the National Institute for Statistics, capped to a maximum of 5 points. At retirement age, the sum of the points is divided by the number of contribution years. The amount of the pension is obtained by multiplying the number of points by the monetary amount of the point, established by the National House of Pensions according to the balance of the pension fund in that year. The monetary amount of a point cannot be less than 30% and higher than 50% of the national average wage used to establish the budget of the pension fund in that year. Each year the pensions are indexed with inflation, though in some years this requirement was difficult to achieve. The main benefits provided by the pension system were for old age, disability and survivors. But the law also introduced some social benefits paid out of the public pension fund, like indemnities for maternity leave, indemnities for recovery after work accidents and holidays for retired persons. Also the farmers, who never contributed to the system, were granted the right to receive a pension for old age.

2. Demographics

Unfortunately the demographic trend is not favourable to the public pension system:

Source: Projections made by the Romanian Association of the Private Pensions Providers.

Though the period 1989-2004 was not very easy for the Romanians — unemployment and high inflation had a negative impact on living standards — life expectancy started to have a positive trend:

Source: Projections made by the Romanian Association of the Private Pensions Providers.

3. Pension system

The structure of the pension system has the following composition:

Source: Projections made by the Romanian Association of the Private Pensions Providers.
* The beneficiaries do not include farmers.

The above data do not include the farmers, because they are still beneficiaries of the pension system but have never contributed to the system. The Ministry of Labour will consider in the future years whether to include the farmers in a social protection scheme, out of the pension system.
The pension system, in the last years, has seen a new and large emigration of young workers in countries like Italy and Spain. There are no official data about this phenomenon, but according to some estimates the number is between 0.8 and 2 million.
The average contribution paid for the PAYG system is 31.5%, pitted between the employer (22%) and the employee (9.5%). The contribution applies to the gross salary, capped to a maximum of 5 times the average national salary.

Tudor Moldovan: President of the Romanian Association of the Private Pensions Providers.

The Polish pension system in comparative perspective

Maciej Duszczyk and Jakub Wiśniewski — Sat, 18 Feb 2006 17:21:43 +0000

1. Introduction

Pension systems constitute the key element of modern welfare states. They epitomise current dilemmas of social policy — what kind of balance between public, private and voluntary sectors should be struck? How should demographic challenges of contemporary Western societies be dealt with? Considering the increasingly competitive environment of today’s global market is there a place for the comprehensive publicly managed and publicly provided pension benefits? What role should the European Union play in the field of pensions? Is the Anglo-American pension model on the rise?
After 1945 Poland developed a pay-as-you-go ‘one-pillar scheme’, where current benefits were covered by currently collected premiums (European Commission 2003:40). Benefits were low due to the fact that management of pension insurance premiums was extremely inefficient. Additionally, the post-war pension system was clogged with inconsistent and ill-defined rules of premium calculation (Šuszczewski 2000:1). Last but not least, benefits were not linked to earnings of the insured persons. In the late 1980s the pension system came under increasing strain. The number of people paying the contributions went down dramatically because of the growing unemployment. At the same time the number of pensioners and recipients of the pre-retirement benefits increased. Due to lax fiscal policies real pensions (in proportion to earnings) grew considerably. The share of GDP consumed by pensions and disability benefits exceeded 15% in the early 1990s. The extrapolations showed beyond doubt, that if this is to be continued the expenditure for pensions will grow to 22% in 2035.
The communist social policy model has been categorised as the ‘state-collectivist’ or the ‘bureaucratic-collectivist’ welfare state (Deacon 1993). It has also been described as ‘an antiliberal, etatistic, hierarchic socialist policy mix with conservative elements (Księżopolski 1999:117). In recent years Poland has undergone far-reaching economic reforms. The old ‘soviet’ model of welfare state was gradually dismantled giving way to free market economy. The overhaul of the social security system was meant to make it compatible with a free market. During the 1990s subsequent governments experimented with social policy instruments that had been used in Western Europe after World War II. In the context of ongoing economic restructuring it was extremely difficult for the authorities to keep up high social security standards.¹
On December 16, 1991 Poland signed ‘the European Agreement’, the treaty establishing association with European Economic Community. The agreement provided for approximation of legislation with the Community law and co-operation — among others — on improving standards of health and safety at work, labour market policies and the modernisation of the social security system. The Polish accession was seen as part of an historic process, in which countries of Central and Eastern Europe overcome the division of the continent, which had lasted more than 40 years, and join the area of peace, stability and prosperity created by the Union. Putting lofty ideas aside, the ten-year period that followed turned out to be a long and painstaking process of reforms. Although the Polish pension system was not a part of the acquis communautaire, the European Union — as it will be shown in the following paragraphs — was not without influence on the course of reforms in Poland. In the field of pensions Poland co-operated with other international organisations as well — the International Labour Organisation and the World Bank.
Some experts, when referring to the global debate over pensions, characterise the ongoing discussions as a ‘new Cold War’ between the Anglo-Saxon model² and traditional European model, favoured by the International Labour Organisation. Thanks to the activity of the World Bank and the International Monetary Fund the reform agenda advocating pension privatisation moved from ‘a radical idea to a mainstream, global policy prescription’ (Kay 2000:192). Throughout the 1990s the Polish authorities have been urged by the World Bank to adopt the ‘liberal’ pension model, advocated by this organisation³. Along with policy prescriptions there came institutional and human resources to assist the Polish government. On the other hand, the long tradition of co-operation with the ILO made the Polish government wary of social risks that radical, neoliberal prescriptions entail.
In this article, we set out to provide the reader with a brief outline of the pension reform of 1999 in Poland and put it in the international perspective.

2. Pension reform in Poland

The system of social insurance in Poland covers all the insurable social risks such as old age, disability, sickness and maternity as well as accidents at the workplace and occupational diseases. Benefits are financed from the contribution-based Social Insurance Fund (Fundusz Ubezpieczeń Społecznych), which is managed by the Social Insurance Institution (Zakład Ubezpieczeń Społecznych).
Practically speaking, discussions have been in place in Poland since the early 1990s about the very possibility and rules on the basis of which the Polish pension system would be reformed. The first democratic governments (both right- and left-wing) lacked the courage to introduce the necessary reforms in the scope of pension insurance. As late as 1997, when a coalition of parties with the Solidarity movement was in power, it became clear that one of the major tasks of the new government would be the introduction of a pension reform. In general two options were considered. The first one assumed the introduction of very slight changes, which would deprive certain social groups of separate pension rights. Such a path of reform would not entail, however, a fundamental restructuring of the system. The other option assumed the introduction of a totally new system based mainly on the privatisation of the pension system (based on the Chilean model). Finally, however, new rules were developed combining both the existing experiences and the introduction of elements of the private management of contributions.
On January 1, 1999 a new pension system was born⁴. The main objectives of the overhaul of pensions were to provide fiscal sustainability and create economic externalities. In terms of fiscal stability more important than short-term balance was to lay the foundations for long-term financial viability. Thanks to the new system, the liabilities of the public sector will have been reduced by 268% by 2050 (Pater 2005). As for the positive economic externalities, the new system was to be conducive to a proper functioning of capital markets (saving and capital stock effects) and employment sphere (Pater 2005). The actuarial link between contributions and benefits has been strengthened. In compliance with recommendations of the ILO the reformed Polish pension system is based on the following pillars:
1. a compulsory pay-as-you-go, defined-benefit pension,
2. a compulsory, capitalised, defined-contribution pension — the so-called ‘Open Pension Fund’,
3. voluntary retirement savings and non-pension sources of income.
Contrary to the ILO recommendations, there is no means-tested tier, which would be financed from the general revenue. Old-age citizens who have no required contribution period can apply for the general social assistance benefit. The public pension from the first pillar is a prevailing source of income security in old age.
Currently, pension rights of citizens are dependent on age of the insured person. The Second pillar is obligatory to persons born after January 1, 1969. People born between January 1, 1949 and December 31, 1968 are free to choose between the old and the new system (whether to be included in or excluded from the Open Pension Fund). Those who have been insured before the reform were given a lump sum of the so called ‘initial capital’ to be added to their newly established individual accounts. On retirement, the amount of money on their account will be divided by the life expectancy for a person at that age. Citizens who were born before 1949 are paid their pension benefits according to the rules that existed before the pension system was overhauled in 1999.
The Social Insurance Institution transfers resources (1/3 of workers’ contributions) to the Open Pension Funds, which are run by private companies (the second pillar). The insured persons are given a possibility to choose from the list of Open Pension Funds operating in Poland5. In 1999, 21 funds were established in Poland by the world and Poland’s biggest financial institutions. Very soon it appeared, however, that the three largest funds own more than 65% of the total fund assets (Pater 2005). The pension component of the Social Insurance Fund is financed out of contributions made by the employers (9.76% of taxable income) and insured workers (9.76%). The contributions of workers who are covered by the second pillar are split between the Social Insurance Fund and the Open Pension Fund. From 2004 to 2010 contribution charges levied by the Open Pension Funds must not exceed 7% of contributions paid. From 2010 to 2014 this ceiling will be gradually lowered from 6.125% to 3.5% (Pater 2005). The insured have been guaranteed a minimum rate of return of their assets. The Social Insurance Institution established a new data registration system, where premiums are registered on the insured persons’ individual accounts.
The third pillar, being an optional form of pension insurance, constitutes not only private individual savings accounts but also occupational pension schemes for workers. As all these voluntary schemes are not accompanied by tax incentives, they play a marginal role in Poland⁶.
The minimum contributory period is 20 years for women and 25 years for men. The pension age is 60 and 65, respectively. If the condition of the minimum contributory period is not met, the pension benefits actually paid are not covered by the minimum income guarantee. Pension benefits are taxed as other sources of income. Since 1999 the indexation of benefits has been based on the mixed price-wage formula (minimum indexation should cover inflation plus 20% of wage growth) and annually defined in the state budget law. The minimum amount of pension benefit is set at the level of minimum wage for workers and 60% of the average income for self-employed people.
Apart from the general pension system in Poland there are special provisions for people with work incapacity or the bereaved family members. Since 1999 they have been divided into separate social insurance schemes with separate contributions. In order to obtain the right to disability pension one has to meet the following requirements:
• he or she must be diagnosed as partially or totally unable to perform work,
• he or she must have worked the necessary contributory period,
• work incapacity must have occurred in a period covered by the insurance.
People who are declared unable to live an independent existence are additionally granted a nursing supplement. Those on disability pension who are by doctor’s declaration able to acquire new professional qualifications are granted a special training pension, which is payable for six months. Family members, who are bereaved by a person who at the moment of his or her death was in receipt of a pension or a disability pension are entitled to survivor’s pension. If necessary, the survivor’s pension is distributed among all the eligible family members. As a rule the benefit amounts to 85-90% of the pension to which the deceased was eligible.
On May 29, 1999 the Polish Pension Funds Chamber, a self-regulatory economic body representing pension fund societies, was established. Its main role is to ‘strengthen public trust (confidence) in the new pension system that closely links a retirement pension with the amount of contributions’ (Łuszczewski 2000:6). The Chamber represents joint interests of the Pension Fund Societies, which manage Open Pension Funds in their dealings with the government at central and regional level. In 2003 the Chamber joined the European Federation for Retirement Provision7.
Certain groups were excluded from the general system of pension insurance. This applies to miners. An amendment to existing regulations was introduced, so that the miners were accorded far-reaching privileges. Its entry into force in 2005 was preceded by a fierce debate about whether certain professional groups should be treated more favourably. Some experts pointed out that if the state is to award special status to some pressure groups the sense of the entire pension reform in Poland would be undermined. Additionally, as the future will probably show, this will pose a threat of an increase in budget deficit. This is especially important given the fact that farmers already take advantage of a separate system in Poland.

Maciej Duszczyk: Deputy head, department of economics, ministry of european affairs, Warsaw.
Jakub Wiśniewski: Department of Economics, University of Warsaw.
1 During the early 1990s Poland and other postcommunist countries were not that unique in experiencing structural problems leading to reorganisation of the welfare state. The developed countries were afflicted with a painful process of transformation to the ‘postfordist’ model of capitalism. With mass production companies in crisis, markets for mass-consumer durables saturated, social security systems came under financial strain. In response to the welfare crisis the social policies underwent significant reforms embracing the arguments of the New Public Management proponents. Mots de jour were ‘market-type mechanisms’ in social policy (quasi-markets, vouchers, user fees, etc.). Another facet of the ideological shift was a shift from ‘nanny state’ towards ‘workfare state’ (Millar 2003).
2 The liberal British welfare state regards the role of the public sector as extremely limited to the regulation of the (private) pensions industry. Public activity is restricted to provision of the low-level, means-tested, non-contributory state pension for the low-income groups of population. recently, many countries have followed a similar route. Even if the liberal policies are not observed to the letter an important degree of marketisation of provision and individualisation has taken place.
3 Poland was the subject of the study conducted under Michał Rutkowski, a Polish expert working for the World Bank, and published in the form of the monograph entitled Poverty in Poland (World Bank 1994).
4 This is the date when the Act on pensions and disability pensions establishing the Social Insurance Fund of December 17, 1999 (Journal of Laws, No. 162, item 1118) came into force. It is important to point out that the new system did not cover farmers who received their pensions through separate scheme, managed by the Social Insurance Institution for Framers (Kasa Rolnicznego Ubezpieczenia Społecznego — KRUS).
5 The necessary requirement for the Open Pension Funds to operate is the well-developed financial sector (capital market). Throughout the 1990s there have been important changes in this respect leading to the introduction of free-market economy standards.
6 Employers who set up occupational schemes in their companies are only entitled to deduct 7% of earnings when calculating the base for social insurance contributions (European Commission 2003:40).
7 The European Federation for Retirement Provision represents various national associations of pension funds and similar institutions for pension provision. Its aim is to ‘provide Europe with a financing vehicle (pension fund or similar) — not precluding any others catered for by commercial undertakings — that is affordable for a large section of the population and that provides a degree of intra- and inter-generational solidarity (European Federation for Retirement Provision 2003).

The Role of Private Insurance in a Society which Prolongs the Life Cycle

Fausto Marchionni — Sat, 18 Feb 2006 16:53:54 +0000

1. Introduction

Throughout the European Union there is a general crisis of the welfare state, a phenomenon which is seen by many as a very real change of identity for the traditional paradigm of the Social State, leading to a new balance. Europe has very low birth rates and society’s ageing process imposes the need for urgent measures for confronting what in the next decades could prove to be unsustainable problems for national states: the health-welfare service, and social security. Private operators must be brought into this context, particularly the insurance companies who — as suppliers of services — will gradually take on an ever more active role in the forming of a system which will be capable of guaranteeing adequate levels of protection, security and wellbeing. Besides a great sense of responsibility, the handling of this change will require from the insurance companies a clear awareness of the framework within which they will be called to work. This is the matter to which I direct this paper.

2. The demographic scenario

The starting point for our investigation are the statistics concerning the process of growth of senility in the population, by which a progressive increase both in the number and the average age of the elderly is understood: this phenomenon is common at a European level, though there are different dynamics.
In effect, as shown by Figure 1, in the countries of northern Europe in which the process began earlier, the number of the very old, i.e. those over 80 years of age is higher (29% France, 25% UK and Germany) while in the southern European countries, such as Italy, Spain, Greece and Portugal, the portion of the population over 65 years (18% compared to 16% in the other three countries) is already high, but the portion of those over 80 is currently still relatively low (22%).

Figure 1: The Process of growth of senility in the population

Source: ISTAT and Eurostat.

As far as Italy in particular is concerned demographic projections for 2050 point to a serious demographic problem: if in 2000 those over 65 years old in our country formed 18% of the population (within this group 22% was made up of the ‘very old’) the projections for 50 years later tell us that that figure will double, rising from 18% to 34% while the relative percentage of octogenarians will rise to 41%. This means, ultimately, that in 2050 one Italian out of three will be over 65 years old and among the elderly 4 out of 10 will be over 80 years old.
A first consequence of such demographic evolution will be an increase in the level of dependence of the pensionable population on those in work, because as shown in figure 2, while in 2000 those over 65 years of age formed 27% of the population comprising those between 15 and 64 years, in 2050 this percentage will rise to 61%, a figure which will prevent the State from having sufficient revenue to pay a large enough pension to maintain the present standard of living. In this regard Italy will face a much greater problem than that of the rest of Europe, where Germany, France and the United Kingdom, though doubling their level of dependence, will reach percentages from 42% to 49%.

Figure 2: high rate of dependece a problem for pensions

Source: ISTAT and Eurostat.

A second aspect which demands the attention of those concerned with social politics is that around the middle of the century the ageing of Italian society will bring with it a noticeable increase in the number of those who are not self-sufficient. From the current two million, the number of disabled will rise to 4.9 million (figure 3). The exponential increase in those who are not self-sufficient will result in a great need for assistance.

Figure 3: increase of risk of loss of self-sufficiency: a problem of Assistance

Source: ISVAP – Quaderno n. 11, The cost and financing of assistance to the non self-sufficient elderly in Italy.

Fausto Marchionni: ceo and Director General, FONDIARIA-SAI Group.

Solving the Pensions Puzzle

Monika Queisser and Edward Whitehouse — Sat, 18 Feb 2006 16:38:09 +0000

1. Introduction

Reforming pensions is one of the biggest challenges of the 21st century. All OECD countries have to adjust to the ageing of their populations and re-balance retirement income provision to keep it adequate and ensure that the system is financially sustainable.
Experts have been warning us for some time that population ageing is looming and that, when it strikes, changes will be rapid. But many governments preferred to ignore the need for reform and cling to the hope of being able to postpone reforms beyond the next election. Immigration of younger workers, more women in work and higher productivity were put forward in the hope that more painful solutions, such as cutting benefits or working longer, could be avoided. All of these factors can certainly help to cope with ageing and the financing of pensions, but the increases in each of them necessary to compensate for ageing are so large that one cannot rely on them alone.
OECD countries have woken up to the need to adapt to an ageing society, and reforms have taken place. But pension reform is a difficult task. Not only does it lead to heated ideological debates, it can result in street protests that force governments to retreat from urgently-needed reforms. Recently, however, public opinion on pensions has been changing. People are realising that a shrinking number of young workers will have trouble paying for more and more pensioners. The time has come to open a frank debate among all members of society and finally address the question of how the cost of ageing should be shared between the different groups of society. In order to launch an informed debate, however, it is necessary to understand the reform options and their likely consequences. Cross-country comparisons are an important tool for this debate and the OECD is helping to provide them.

2. Is there a perfect pension system?

Can a government create a perfect pension system, and if so, how? Some of the most frequently asked questions include: which country does it the best way, which country is doing the worst job, which systems are the most generous, will it be possible to reform without increasing pensioner poverty, and will countries be able to pay for the promises they are currently making?
There are no simple answers to any of these questions. National retirement-income systems are complex and pension benefits depend on a wide range of factors. Differences in retirement ages, required years of service, benefit calculation methods and adjustment of paid-out pensions make it very difficult to compare pension systems across countries. Another problem is that life expectancies at retirement differ from one country to another, which means that some countries will have to pay pensions for a much longer period than others. As a result, national debates are often full of misleading claims regarding the generosity and affordability of other countries’ pension arrangements.
International comparisons to date have focussed mostly on the fiscal aspects of the ageing problem. The OECD has published projections of age-related expenditures, including public pensions. Much less attention has been paid to the social sustainability of pension systems and the impact of reforms on the adequacy and distribution of pensioners’ incomes. But these aspects are also crucial if countries want to attain the dual objective of promising affordable pensions and preventing a resurgence of pensioner poverty.
The OECD has developed a framework to assess the future impact of today’s pension policies, including their economic and social objectives, and to compare them between countries. The models consider someone starting work today in each of the 30 OECD countries. It then assumes that current rules remain the same for the next 40 years or so, until the person reaches retirement age.
The framework takes account of the detailed rules of pension systems but summarises them in measures that are easy to compare. Pension benefits are projected for workers at different levels of earnings, covering all mandatory sources of retirement income for private-sector workers, including minimum pensions, basic and means-tested schemes, earnings-related programmes and defined contribution schemes. Another novelty is the inclusion of the large effects of personal income tax and social security contributions on living standards in work and in retirement: all indicators are presented gross and net of taxes and contributions. These are presented in the new series, OECD Pensions at a Glance, which will be updated every two years.¹

Monika Queisser: Director of the Division of Social Policies, OECD, Paris.
Edward Whitehouse: Director of Research on Work and Social Affairs, OECD, Paris.
1 OECD (2005) Pensions at a Glance. Public policies across OECD countries, OECD, Paris.

The Double Helix of Learning and Work. Arguments for Vocational Contents in Higher Education

Mircea Malitza and Elena Gheorghiu — Fri, 17 Feb 2006 18:14:53 +0000

1. General premises of our common concerns

The crisis of present-day educational systems, of labour markets and of world political systems, is a real and worrying pressure of societies on the organisation and contents of higher education itself.
It is important to notice that concerns referred to the contents and organisation of present-day educational systems, exists all over European countries, in the spite of the fact that it is based on backgrounds of significantly different experiences and countries’ history. We can see for instance that, while governments are increasingly preoccupied with the chronic disease of unemployment, companies have recently become very actively involved in educational processes by recycling the workforce and sponsoring computer-aided education.
2. The Need for a reform of education

The present article — inspired by Orio Giarini and Mircea Malitza’s book entitled The Double Helix of Learning and Work (which is at the same time a Report to the Club of Rome) — is intended to offer several complementary arguments to the idea that especially in our knowledge society, deep modifications inside the educational systems (contents and structure) are really necessary, and how these modifications are to be concretely implemented.
But the key to an effective and useful reform of education, starts with the refusal to embrace any of the social, political or economic doctrines that continue to ‘colour’ the debate on learning and work, and to simply go for a problem-solving approach. Realistically, a structural reform of education will have to go through a more intense and coherent phase of experiment, with the support of the great decision-makers (governments, companies and civil society). The exercise of co-operation among these actors on a matter of highest importance could be beneficial even to the shaping of governance in the twenty-first century.
With regard to a reform of education, and especially the very concrete steps to be taken, we will refer to the project of a reform of education as proposed in the book entitled The Double Helix of Learning and Work.
This Double Helix Project is not about a simple answer to the challenges posed by present-day economy markets — markets which formulate essentially new kinds of requests — university outputs (meaning students’ professional skills). But it is also — or even mostly — about the internal evolution of higher education itself, about the accumulation of one’s own experience, and about one’s own initiatives in the constant quest for answers for which neither answers nor applications can be easily found.
Our paper is focused not on the external challenges to the higher education, but on the present-day internal logic of educational systems and its points of contact with the labour market — it is about the internal challenge to higher education. The labour market formulates requests to higher education, but what are the answers which higher educations really offers to the labour market? Facts speak for themselves: the most common case is the one in which graduate students find themselves almost completely misplaced in the labour market when the time comes for them to access it.

3. Lifelong learning, interdisciplinarity, vocation, or changing ‘learning-working view’

If we look at the evolution of higher education, we find that nowadays (more than ever before) two historical innovations have emerged: 1. the necessity for lifelong learning and 2. the relevance of interdisciplinarity.
Obviously, even those are a result of the evolution of human societies and of human knowledge; but the problem is that, since the need for lifelong learning and for interdisciplinarity was recognised, it has still remained, in fact, a purely theoretical one. Those two big conquests accepted by governments, organisations, charts, solemn declarations, have never been put into practice yet and certainly not in higher education. But the solution to such situation would consist precisely in what after all also the labour market itself mostly asks from individuals and from educational systems nowadays: an increase in the vocational dimension of higher education.
Lifelong learning, interdisciplinarity and vocational dimension are the subjects we would like to focus on in this section.
Two great achievements of the contemporary modern educational thinking — the imperatives of lifelong learning and of interdisciplinarity — can find their answers only when the still dominant, overwhelming, traditional way to organise and accumulate knowledge (the disciplinary approach, knowledge separated and split into single disciplines not obviously interrelated between them and even less with the labour market concrete demands) will give the floor to the new criterion — the vocational one — which would be by nature (or in line with the human mind itself and with the evolution of societies) a multidisciplinary and interdisciplinary and lifelong one.
Consequently, together with interdisciplinarity and lifelong learning, the alleviation of unemployment may emerge.
Furthermore, starting from our duty to finally apply the principles of lifelong and interdisciplinary education, once we applied them, then what we reach would be a growing need for the those.
The thesis which we propose is therefore: an answer to the challenge of the labour market coincides with the answer we are looking for to the challenge of educational system in order to be able of interdisciplinarity and of applying the long term of life in higher education, or, in other words, is the cultivation of the vocational dimension in higher education.
To understand better the interaction between learning and work, which enables lifelong learning, interdisciplinarity in education and vocational training, see the following schemes and paragraphs:

Source: UNESCO.

Source : Orio Giarini, Club of Rome.

Both new approaches represent life (education and work) as a succession of temporary segments of compact activities (education or work) followed by interruptions and comebacks.
The main disadvantage of the higher education system conceived in the old manner, and making it unable to cultivate the individual’s vocation, consists in the separate treatment of learning (education) and practice (work), as if learning was exclusively the attribute of education and practice and the occasion to forget the learning ever brought by education, and as if working (meaning accumulating practical experience) damaged the human knowledge or was in opposition with the learning itself.
The main advantages to treat learning and work together, in conformity with the nature of everyday reality itself, are the following:
1. The empty spaces from one line (education — E) could be filled up by the full spaces from the other line (work — W) and vice versa. Such unifying-realistic vision of the two social systems of education and work, progressively reveals their affinities under the sign of the knowledge society.

Technology-based services supporting ageing in place

Nicola Pangher — Fri, 17 Feb 2006 17:30:17 +0000

1. Introduction

The demographic changes in the developed countries, which is leading to the so called ‘inversion of the demographic triangle’, will have a most dramatic impact on these societies. An increasing number of older citizens, with reduced physical and mental abilities and most often also with chronic and degenerative diseases, will need support in order to remain independent and ‘age in place’ in their homes. Independent living is an important target not only because it usually represents a strong wish of the older person, who wants to maintain a good quality of life, but also because it reduces the burden on hospitals and long term care facilities, which represent expensive care settings. ‘Ageing in place’ is an important element of a new strategy for increasing the quality of healthcare while keeping costs under control: moving from what Andy Grove, Chairman of Intel Corp., calls the ‘mainframe age’ of healthcare to a more distributed model, where each single house becomes a setting for preventing or managing diseases.
A fundamental issue in developing an ‘ageing in place’ strategy must consider the incidence of disabilities and diseases: caregivers have to face a complex challenge, where preserving a good health status is necessary in order to allow elderly citizens to remain independent.

Figure 1: Annual healthcare spending in Europe: US$ 570 Bln

Source: OECD, World Health Organization, Center for Disease Control USA, 2000 data

In most countries the organisation of social and health services is separate, but home care services are composed by social and healthcare element in a unique framework. In this article the technological framework necessary to support elderly citizens ageing in their homes will be presented.

2. The technology framework

Two key components make up the framework for tele-home care services:
• the Operations Centre,
• the E-Health backbone.
The operations centre is a call centre where skilled operators are constantly following elderly persons at home and offering increasingly complex services. A basic set of services are based on the communication between the centre and the citizen:
1. Tele-emergency: the person has an integrated microphone and panic button that allows the immediate contact to the centre, where the problem can be described verbally.
2. Tele-control: the operators call regularly the persons at home, checking their general condition and identifying possible social and health problems.

Figure 2: Basic Tele-care services: tele-emergency and tele-control

The simple panic button can be integrated with other environmental sensors, that allow the monitoring of dangerous situations and alarms: movement sensors allow the detection of falls or gas sensors can detect the presence of dangerous emissions from a kitchen or the presence of an excess of carbon monoxide in the house.
The operations centre can also become the key component to a more coordinated approach where common social and health care protocols are shared between the social service operators, the healthcare service operators, the family and the patient.

Nicola Pangher: PhD, Italtbs SpA, Padriciano 99, 34012 Trieste, Italy.

Neurotrophic factors and longevity: an evolutionary view of the role of the brain in regulating lifespan

Enrico Tongiorgi — Fri, 17 Feb 2006 16:53:14 +0000

1. Introduction

Studies carried out in the last 25 years have shown that the theoretical maximal lifespan of a given species, 120 years for humans, is strongly correlated with its brain/body size ratio. This is particularly true in mammals, with the exception of bats which, on average, live three times longer than predicted by their brain and body size¹. From these comparative anatomical studies the new concept has emerged, that lifespan is largely controlled by the brain. Evolutionary theories provide the key to understand how brain may control lifespan. According to this view, during evolution the control of the body metabolism (including control of energy storage in fat and active research for new energy, i.e. food), has been located in the brain which, as a consequence, has assumed the control of the entire body’s health and resistance to life stresses. On the other hand, the health of the brain itself is subjected to the general body’s health. Thus, it appears that the lifespan of an individual is determined by the mutual influence between brain and body involving a sort of two-ways return trip of ‘signals’ travelling from the body to the brain and back. Understanding how brain and body influence each other and what is the nature of these physiological signals will have a tremendous impact on our attitude towards life and ageing.

2. From body to brain

‘Mens sana in corpore sano’ (a sound mind in a sound body) is one of the most famous Latin quotation world wide from Decimus Iunius Iuvenalis, anglicised as Juvenal, a Roman satiric poet of the late 1st century and early 2nd century AD. Over time, the phrase has come to mean that only a healthy body can produce or sustain a healthy mind and it is certainly a common life experience for many people that physical exercise can have beneficial effects for both our physical and mental health. However, only recently, has extensive research on humans and animal models, provided evidence that exercise may have specific benefits on cognitive function, particularly in later life. Cognitive functions consist in the ability to elaborate information from the external and internal world acquired through the five senses (seeing, hearing, touching, smelling and tasting) and to give a meaning to these perceptions in order to produce a correct behavioural response to the environment. In humans, cognitive functions also include the so-called higher brain functions consisting in the ability to reason and to predict the consequences of our own and other people’s actions. Cognitive functions are particularly important as they allow us to adapt our actions and reactions to a changing environment, in a word, they allow us to learn.

Until the early 1990s, it was widely assumed that the beneficial aspects of physical exercise consisted in an unspecific action on general health that would also affect the brain health, albeit indirectly. However, when studies using animal models were directed towards understanding the neurobiological bases of these benefits, it turned out that exercise affects directly the molecular machinery of the brain itself. In these studies, voluntary wheel-running was selected because it allows rats or mice to choose how much to run (i.e. it avoids confounding variables associated with the stress of forced treadmill running and investigator handling) and it is quantifiable. It is now clear that voluntary exercise can increase levels of some proteins involved in the maintenance and repair of the brain such as the neurotrophin brain-derived neurotrophic factor (BDNF) and other neurotrophic factors². BDNF, is a small protein that is secreted from neurons and belongs to the protein family of neurotrophins whose principal member is nerve growth factor (NGF). Through the discovery of NGF, the Nobel Prize laureates Rita Levi Montalcini and Stanley Cohen demonstrated for the first time that some proteins may have so-called neurotrophic properties, i.e. they can sustain the growth and survival of neurons. Accordingly, BDNF, like other neurotrophins, is able to stimulate genesis of new neuronal cells and increase resistance to brain insults by supporting the survival and growth of many neurons^3,4. In addition, BDNF is unique in improving learning and mental performance because it acts as a key mediator of synaptic efficacy, neuronal connectivity and use-dependent plasticity^5,6.
In their initial hypothesis, the researchers predicted that the response to exercise would probably be restricted to motor-sensory systems of the brain, such as the cerebellum, primary cortical areas or basal ganglia. The findings were surprising: several days of voluntary wheel-running increased levels of BDNF mRNA in the hippocampus⁷, a highly plastic structure of the brain that is normally associated with higher cognitive functions rather than motor activity. Theses effects appeared within days in both male⁸ and female⁹ rats were sustained even after several weeks of exercise¹⁰ and were paralleled by increased amounts of BDNF protein. In addition, running activity increased levels of BDNF mRNA in the lumbar spinal cord¹¹, cerebellum and cerebral cortex⁸. Since learning, a high-order of brain plasticity, increases BDNF¹², and BDNF, in turn, facilitates learning¹³ the prediction was that mechanisms that induce BDNF production, such as exercise, can enhance learning. Indeed, running enhances a form of long lasting memory called Long Term Potentation (LTP) and improves the ability of the animals to remember geographical landmarks to orient themselves¹⁴.
Recently, genomic analysis (high-density oligonucleotide microarray) has demonstrated that, in addition to increasing levels of BDNF, exercise mobilises expression of genes that are known to promote brain plasticity processes. However, although other trophic factors, including nerve growth factor (NGF)⁸ and fibroblast growth factor 2 (FGF-2), were also induced in the hippocampus in response to exercise, their increase was transient and less robust than that of BDNF, suggesting that BDNF is a better candidate for mediating the long-term benefits of exercise on the brain.
Thus, mild aerobic exercise such as for example walking, swimming or cycling provides a simple means to maintain brain function and promote brain plasticity by keeping high the brain levels of BDNF.

3. The return Way: from brain to body

There is no doubt that the nervous system controls large part of the normal functioning of our organs. In particular, most visceral functions (e.g. our digestion) are regulated by the autonomous nervous system, which controls automatically and without involving our will, large part of the internal organs’ physiology. However, only recently has the scientific community begun to accept the concept that the brain can actually control not only the general health status of one organism but even its lifespan. The first evidence came from studies showing that there is a strong positive correlation between brain size and maximum lifespan among mammalian species^15,16. These studies demonstrated that animals having larger brains and relative smaller body size (i.e. high ‘brain/body-size’ ratio) live longer, with only one clear exception being that bats live considerably longer than mice of equal brain and body size¹⁷.
Why might the nervous system be a key regulator of lifespan? It could be argued that, since organisms without brains (e.g. yeast) have finite lifespan, the brain is not a fundamental determinant of lifespan. However, there is increasing evidence that brain can actually control lifespan. First of all, the nervous system can increase the probability of an organism of having a long lifespan simply by increasing its ability to escape mortal threats and have appropriate behavioural responses to specific environmental and social contexts. In the case of humans, intelligence is associated with a longer average lifespan by virtue of implementation of knowledge on how to prevent and treat various diseases. On the other hand, the brain also controls neuroendocrine hormonal systems which are strongly implicated in ageing. Finally, according to a novel theory, during evolution the brain has acquired the ability to regulate energy metabolism throughout the body, and hence taken control of the molecular and biochemical processes that control ageing in brainless organisms. To better explain this theory, the role of the brain in regulating energy metabolism will now be analysed from an evolutionary perspective starting from the definition of what is ageing from an evolutionary point of view.

Enrico Tongiorgi: BRAIN Centre for Neuroscience, University of Trieste, Italy.
1 Brunet-Rossinni, A.K. and Austad, S.N. (2004): “Ageing studies on bats: a review”, Biogerontology, No. 5, pp. 211-222.
2 Cotman, C.W. et al. (2002): Trends in Neurosciences, No. 25, pp. 295-301.
3 Barde, Y-A. (1994): “Neurotrophins: a family of proteins supporting the survival of neurons”, Prog. Clin. Biol. Res., No. 390, pp. 45-56.
4 Lindvall, O. et al. (1994): “Neurotrophins and brain insults”, Trends Neurosci, No. 17. pp. 490-496.
5 Schinder, A.F. and Poo M-M. (2000): “The neurotrophin hypothesis for synaptic plasticity”, Trends Neurosci, No. 23, pp. 639-645.
6 Lu, B. and Chow, A. (1999): “Neurotrophins and hippocampal synaptic transmission and Plasticity”, J. Neurosci. Res., No. 58, pp. 76-87.
7 Neeper, S.A. et al. (1995): “Exercise and brain neurotrophins”, Nature, No. 373, p. 109.
8 Neeper, S.A. et al. (1996): “Physical activity increases mRNA for brain-derived neurotrophic factor and nerve growth factor in rat brain”, Brain Res., No. 726, pp. 49-56.
9 Berchtold, N.C. et al. (2001): “Estrogen and exercise interact to regulate brain-derived neurotrophic Factor mRNA and protein expression in the hippocampus”, Eur. J. Neurosci, No. 14, pp. 1992-2002.
10 Russo-Neustadt, A. et al. (1999): “Exercise, antidepressant medications, and enhanced brain derived neurotrophic factor expression, Neuropsychopharmacology, No. 21, pp. 679-682.
11 Gomez-Pinilla, F. et al. (2001): “Differential Regulation by exercise of BDNF and NT-3 in rat spinal cord and skeletal muscle”, Eur. J. Neurosci, No 13, pp. 1078-1084.
12 Kesslak, J.P. et al. (1998): “Learning upregulates BDNF mRNA: a mechanism to facilitate encoding and circuit maintenance?”, Behav. Neurosci, No. 112, pp. 1012-1019.
13 Tokuyama, W. et al. (2000): “BDNF upregulation during declarative memory formation in monkey inferior temporal cortex”, Nat. Neurosci, No. 3, pp. 1134-1142.
14 van Praag, H. et al. (1999): “Running enhances neurogenesis, learning, and long-term potentiation in mice”, Proc. Natl. Acad. Sci. U.S.A., No. 96, pp. 13427-13431.
15 Sacher, G.A. (1975): “Maturation and longevity in relation to cranial capacity in hormonal evolution”, in: Tuttle, R. (Ed.), Primate Functional Morphology and Evolution. The Hague, Mouton.
16 Hofman, M.A. (1983): “Energy metabolism, brain size and longevity in mammals”, Q. Rev. Biol., No. 58, pp. 495-512.
17 Kirkwood, T.B.L. and Austad, S.N. (2000): “Why do we age?”, Nature, No. 408, pp. 233-238.

Long-Term Care: A Key Issue for the 2005 White House Conference on Ageing

Yung-Ping Chen — Fri, 17 Feb 2006 15:41:37 +0000

1. Introduction

The 2005 White House Conference on Ageing is scheduled for December in Washington, D.C. This once-a-decade Conference will be the fifth in the series dating from 1961. While past Conferences had all dealt with numerous issues as they should, each Conference had its major focus — for example, health care in 1961, income maintenance in 1971, and social security in 1981. What should be the major focus of the 2005 Conference? I nominate long-term care, despite the fact that social security reform has dominated discussions of domestic policy this year.
Long-term care may be defined to include medical, social, and personal services for the benefit of persons with chronic physical and/or cognitive impairments, delivered at their homes, in the community where they can access, or in congregate settings such as a nursing home or an assisted living facility in which they live. The objective of such services is to help chronically disabled individuals, many of whom are at the final phase of life, to maintain as much independence as possible in meeting daily living needs.
There are many issues involved in long-term care. For example, what are the types and amounts of services needed and who should deliver them and how? And who should pay for the expenses incurred and how? While these inter-related issues are all significant, the purpose of this article is to discuss how to fund long-term care. Although the situation in the United States is under discussion, some of the implications may have possible relevance for other countries as well.
The article is organised as follows. Section 1 briefly describes the new reality of ageing and dying and its implications for the need for long-term care. Section 2 reports the recommendations on financing long-term care from a ‘mini-conference’ of the 2005 White House Conference on Ageing. This is followed by a description of the current funding pattern of long-term care (Section 3) and a summary of a proposed Social Security/Long-Term Care (SS/LTC) plan (Section 4). Section 5 concludes with a brief discussion of the intragenerational funding model that underpins the SS/LTC plan. To illustrate a similar approach, the article includes an appendix, which is a statement by a task force on health care reform during the administration of President Bill Clinton.

2. New Reality of Ageing and Dying

Increasing longevity has changed the reality of ageing and dying during the past century, making long-term care a more pressing policy issue than is commonly appreciated. As observed by Lynn and Adamson (2003), in 1900, relatively few people had lingering disabilities arising from an eventually fatal chronic illness because death came, more likely than not, abruptly in an era when life expectancy averaged only 47 years.
Now, life expectancy averaged about 75 years in 2000. More people survive into older ages due to improved public health and better medical treatments. “But no matter how carefully we protect our health, eventually, each of us will become sick, frail, or disabled from one or more conditions that result in ongoing illness leading to death” (Lynn and Wilkinson, 2005). Consequently, many older Americans now face chronic illness and disability in the final years of life (Lynn and Adamson, 2003), requiring assistance for their daily living.
That long-term care financing has become an increasingly significant policy issue has not gone unnoticed. The following is but the latest example, cited here because of its affiliation with the 2005 White House Conference on Ageing.

3. Mini-Conference on Long-Term Care

In April 2005, a meeting under the title, ‘Establishing a Comprehensive National Long-Term Care Policy,’ was convened in Washington, D.C. by the following organisations: AARP, American Council of Life Insurers, American Health Care Association and National Center for Assisted Living, America’s Health Insurance Plans, National Alliance for Caregiving, and National Association for Home Care & Hospice.
Designated a ‘mini-conference’ event by the 2005 White House Conference on Ageing, the purpose of the meeting was to provide the policy committee of the Conference with recommendations specific to long-term care that could be considered for incorporation into the Conference’s final policy recommendations to the President and Congress.
One of the major purposes of the mini-conference was to formulate long-term care financing recommendations “to enable our nation to achieve sustainable, affordable and efficient long-term care” (Mini-Conference on Long-Term Care, 2005). They reported the following three recommendations on financing.
Recommendation: Coverage for all Americans through Public AND Private Mechanisms
It is recommended that Congress and the Administration take steps to achieve long-term care coverage for all through participation in public and private risk pools. With respect to expanding public risk pools for long-term care, Congress must establish a new public program that provides basic services for chronic care to all Americans.
With respect to expanding private risk pools for long-term care, Congress must enact laws to encourage private participation by individuals and families for long-term care services, such as tax incentives for the purchase of long-term care insurance and/or other private options for financing long-term care.
Recommendation: Use Current Public Dollars More Efficiently, Intelligently
It is recommended that Congress and the Administration improve the use of health and long-term care dollars across programs by leveraging current funding to maximise efficiency, and to employ best practices from demonstration projects and private sector initiatives on long-term care.
Recommendation: Launch a National Long-Term Care Education Campaign
It is recommended that Congress and the Administration develop and launch a national educational campaign on long-term care that focuses on the risks, costs, and need to pre-fund long-term care.
The campaign must be premised upon a credible advocate or group of advocates to elevate national focus on long-term care issues and awareness.
Additionally, a Congressional or Presidential Commission should be formed to address the nation’s long-term care needs and to formulate steps to reform our long-term care financing system.
The mini-conference concluded that overall, there was recognition that government cannot do everything and that a public/private approach is necessary to create and implement policies that will provide access to quality long-term care and supportive services in an economical and equitable manner. It was also noted that not all individuals are taking as much personal responsibility for their health and long-term care needs as they are able.

Yung-Ping Chen holds the Frank J. Manning Eminent Scholar’s Chair in Gerontology, University of Massachusetts Boston, MA 02125, U.S.A. Recently named a delegate to the 2005 White House Conference on Aging, he had attended the 1971, 1981, and 1995 White House Conferences on Aging and the 1998 White House Conference on Social Security. A founding member of the National Academy of Social Insurance, he served on the panel of the 1979 Advisory Council on Social Security. He may be reached at [bingchen_2000@yahoo.com] or [bing.chen@umb.edu].

From Bismarck’s Pension Trap to the New Silver Workers of Tomorrow: Reflections on the German Pension Problem

Patrick M. Liedtke — Sun, 12 Feb 2006 16:42:32 +0000

1. Introduction

The modern world, for all the great advances in most parts of our lives, has created a surprising conundrum: Bismarck’s pension trap. A system to provide old-age security based on an inadequate if not increasingly meaningless measure, the chronological age of the person. Which, to make matters worse, has been kept constant for more than 100 years.
Surprising is that we apparently feel quite comfortable in this trap, as long as we do not have to bear the full cost of our folly to design a system that encourages people to behave exactly in the way that will undermine its most basic operating principles: retire early to deprive the economic system of productive human capital; have fewer or no children to guarantee the next generation of contributors etc.. It is not only that we seem to have great difficulties getting out of this self-inflicted predicament but worse, we have set in motion a development that has great momentum and cannot easily be stopped unless we rethink in a more fundamental way the manner in which we treat our life-cycle. I shall discuss this issue in more detail in this paper, but before entering the analysis, here are a series of questions that may stimulate our thinking:
1. Why did Bismarck set the retirement age at 65 years and nobody bothered to increase it for a century?
2. Why have we considered all increases in life expectancy over the past 100 years as an extension of the inactive period at the end of our life cycle?
3. Why do we have a public three-generations pension model on the supply side but only a two-generations model on the demand side?
4. Why do we seem to believe that retirement is like living Sundays seven days a week?
5. Why has our modern society failed to integrate the elderly by offering adequate labour market conditions for their participation?
6. And where did all the children go in our advanced economies?

2. Revisiting the Bismarck’s Pension Trap

The first question asked above is key for this paper: Why did Bismarck set the retirement age at 65 years and nobody bothered to increase it for a century? The American Social Security Administration has a partial answer to this question and they report a myth associated with the introduction of the retirement age in Germany by Bismarck¹:
“One persistent myth about the German program is that it adopted age 65 as the standard retirement age because that was Bismarck’s age. This myth is important because Germany was one of the models America looked to in designing its own Social Security plan; and the myth is that America adopted age 65 as the age for retirement benefits because this was the age adopted by Germany when they created their program. In fact, Germany initially set age 70 as the retirement age (and Bismarck himself was 74 at the time) and it was not until 27 years later (in 1916) that the age was lowered to 65. By that time, Bismarck had been dead for 18 years.”
In 1889, Germany became the first nation in the world to adopt an old-age social insurance programme. It was designed by Germany’s Chancellor at the time, Otto von Bismarck. The idea was first put forward, at Bismarck’s behest, in 1881 by Germany’s Emperor, William the First, in a ground-breaking letter to the German Parliament. William wrote: “… those who are disabled from work by age and invalidity have a well-grounded claim to care from the state”². It is interesting to note that William the First addressed two distinct phenomena, age and invalidity, in the same sentence, both with a reference to disability as the triggering circumstance. When consulting the literature of the outgoing 19th century, one realises that at that time indeed, an age of 65 (70) years resulted more often than not in a state of disability, at least if we compare the physical fitness of the person in question to carry out their assigned tasks. It was therefore practical to define an age at which people could generally be considered unfit to continue their labour efforts.
William’s and Bismarck’s aim of the reform was to introduce social insurance in Germany both in order to promote the well-being of workers in order to keep the German economy operating at maximum efficiency, and to stave-off calls for more radical socialist alternatives³. The German system provided contributory retirement benefits and disability benefits too. Participation in the schemes was mandatory and contributions were taken from employer, employee and — through different elaborate mechanisms — from government. Coupled with the workers’ compensation programme established in 1884 and the health insurance laws enacted the year before, this gave Germans a comprehensive system of income security based on social insurance principles⁴. Since then the German system of social security served as a reference point for reforms the world over and it stood and still stands the test of time reasonably well, considering that it was originally introduced more than a century ago and as remained in place with few changes ever since.
Over time, however, two key points got lost: firstly, Bismarck’s idea to protect against disability caused by age and not against age itself. And secondly, the aim of the reform to promote the well-being of workers in order to allow the economy to operate at maximum efficiency. In today’s world, with life expectancies that are far superior to those registered in Germany at the end of the 19th century⁵, the same system will have completely different impacts on the economy. The actuarial tables for Germans 1871-80 register the average male life expectancy at birth as 35.6 years and the female at 38.4 years. Today they stand at (tables 2002-4) 75.9 and 81.5 years respectively. Even if one were to take the relatively high infant mortality of 100 years ago into consideration and compare the life expectancy of a person in their working age living then to today, the increase is extraordinary. A German in his or her mid-forties had at the end of the 19th century roughly the same remaining life expectancy as a person going into retirement today⁶.
So what to make of Bismarck’s first idea to protect against disability from age rather than age itself? If the German retirement system had added as many years to the retirement age as we added to the overall life expectancy over the past century, the official retirement age would stand at around 95 years rather than 65 years. And even if we had only tried to keep the average duration of pension payments constant over the past four decades, the retirement age for German women would today be 75 years and that for men 70 years⁷. Considering that almost all medical indicators for pensioners — life expectancy, disability rates, morbidity etc. — are much more positive than they were 100 years ago, it is difficult to understand why the system has not been adapted sooner to the realities of 20th century, not to say 21st century, life. Prof. Rürup, the chairman of the German Commission for the Sustainability of the Financing of Social Security Systems proposed in the commission report the gradual increase of the official retirement age in Germany to 67 years — starting in 2011 with one additional month per year⁸. The full increase would thus only be implemented 24 years later, i.e. in the year 2035. Is that enough? The commission itself admits that by then it is expected that the remaining life expectancy of a German man of 60 years of age will have increased again by more than three years. So, while the proposed system to increase retirement ages in the future is neither compensating for the past development nor even catching up with the expected developments of the coming three decades, it is at least — and at last — a step in the right direction.
What is still missing is a more objective criterion as to what sort of protection people really need from government. In Bismarck’s view, disability came first, which means that as long as a person is fit enough to work he or she can in principle arrange for their own protection, regardless of age. This is not to say that they will have to work until they die. It only means that they do not need additional government protection specifically and exclusively because of their old-age. If one considers the amount of products available and sold to protect against financial security and particularly those for old-age, it seems obvious that we need a more fundamental debate of this issue.
The Rürup commission describes in the final report that Social Security Systems’ “raison d’être is to provide individually plannable insurance cover for existential risks which citizens are not capable of assuming on their own”⁹. It is arguable whether the mere fact that a person reaches a certain age constitutes ceteris paribus a condition that renders him or her incapable to cover risks that he or she could cover before. The longevity risk is a risk that is particularly difficult to cover when it is analyzed in conjunction with factors like the loss of physical and mental abilities that usually — but not always and not for everybody in the same way — accompany the biological ageing process. Age in itself is meaningless — capacity is.
We thus shift our attention from the above described dimension of the pension problem to the issue of the labour markets that have to sustain an ageing workforce and especially a group of elderly workers that are rapidly increasing in number.

Patrick M. Liedtke: Secretary General and Managing Director of The Geneva Association. The Geneva Association is the world’s leading insurance research centre supported by the private insurance industry and has been at the forefront stimulating pension reforms philosophy for over 30 years. Visit www.genevaassociation.org for more information.
1 Cf. the historical database of the SSA in the USA, available on www.ssa.org.
2 Same source.
3 It is ironic that despite his impeccable right-wing credentials, Bismarck would be called a socialist for introducing these programs, as would happen later to other reformers like President Roosevelt in the US. In his own speech to the Reichstag during the 1881 debates, Bismarck would reply: “Call it socialism or whatever you like. It is the same to me”.
4 Unemployment insurance would be added in 1927, making the social system complete by modern standards.
5 For complete series of statistics visit the Statistisches Bundesamt Deutschland.
6 For a more detailed analysis of this phenomenon and related explanations see Liedtke P. (2001): “Driving the Pension Solutions”, Journal for Insurance Research & Practice, journal of the Chartered Insurance Institute Society of Fellows, Vol. 16, No. 2, July.
7 The average duration of pension payments in Germany in 1960 was 10.6 years for women and 9.6 years for men. In 2002 the duration increased to 19.5 years for women and to 14.3 years for men. Source VDR (2005).
8 Achieving Financial Sustainability for the Systems of Social Security, Report of the Commission.
9 Quoted from the commission’s introduction to the English summary of their report.