THE ECONOMY to the test of population ageing

The consequences of population ageing are too often only considered in terms of pension system and reforms to be launched in order to ensure their duration. This vision is too simplistic. The problem of ageing affects all fields of our Society. Our way of working, of organising our social life, how we cover social risks, how we consider different age groups, the relationships between the generations, are deeply transformed by population ageing.

The increase in life expectancy together with population ageing is questioning the existing cultural pattern of age organization and social time. This situation challenges the respective role of each generation in our Society, their contribution to the production of wealth and the transfer of resources. This situation also requires a new kind of solidarity between generations.

In France the negotiations about the reform of the pension scheme are now beginning. But politicians and economists have different opinions about the consequences of population ageing on the future of the Social Security system.

Politicians only consider the problem of pensions. Indeed, for them, a pension scheme is a political choice which only involves the mechanisms of finance. To adapt pension schemes to population evolution, they consider necessary and possible to play on different leviers such as: the contribution rate and the number of years, the raise and indexation or even the decrease in pensions.

            As far as economists are concerned – for example Jean Arthus, professor at the Sorbonne and at the University Institution specialized in engineering - every option, every political choice has foreseeable economic effects, above all on savings and investments, employment and the labour market, and on the growth and redistribution of income between social classes and generations. Population ageing also has important effects on inflation, and financial profit.

Ageing and employment

            The state of employment is as essential for the different generations as their situation as regards the Social Security.

            As for Anne Marie GUILLEMARD, sociologist and economist, member of the of European Academy of Science, contrary to what is generally asserted, « the real challenge posed by ageing is less a problem of pensions than a problem of employment faced by workers who are getting older ».

            This is due to the fact that we always associate ageing with pensions, and we forget a fundamental principle: the system of pension is based on a tacit agreement between generations. This agreement not only takes into account how the social time is divided during the lifetime but also the risks to be covered, according to the age category, to ensure the payment of the pensions. However today we face an upheaval of the whole organization of ages and social time.

            Indeed, the reasonable organization of social time: training for young people, lasting and secure employment, pension, is disintegrating because of the effects of economic and social hazards (unemployment, outsourcing, to change work).

            Finally in France, we can see, in the framework of social care, a new social definition of ages. By reducing the age of retirement, people leave the labour market earlier, which means that the social time of a whole generation is increased. Indeed, this generation is already considered old while still relatively young since it is earlier sent into inactivity. And when quinquagenarians are dubbed “old workers”, the whole social definition of age is being questioned, irrespective of demographic ageing.

Ageing, savings and investment

            We won't go over what has been said during the general assembly in Albufeira; to cope with population ageing, capitalisation had qualities that would not have repartition. Indeed capitalisation should accumulate reserves that would protect pensions from economical risks. Taking a look at recent events, it is obvious that it is not true. Capitalisation, as well as Repartition, suffers from demographic and economic clash but through different financial channels.

            In France, we have a more cautious position. We think that it is possible to combine both systems.

            Whatever pension scheme we chose, it will have consequences on savings and investments. To award a pension is like giving a substitution income. Whatever the channel used, Capitalisation or Repartition, it remains a money transfer through time (savings or subscriptions). The two systems are based on the production of wealth: payment of an income that partly finances the pensions, or payment to a fund that ensures a pension complement. The concept of savings (subscription or payment to a fund) though remains in both pension schemes.

            So we observe that an increase in the subscription rate as well as too much Capitalisation can lead to a decrease in purchasing power of working people, thus slowing down economic growth, and/or provoking a transfer of capital, prejudicial to investments.

Ageing and solidarity between generations

The current debate between supporters of Capitalisation and supporters of Repartition is the result of a cultural choice more than a real economic approach. Pension funds (« pensuin fund ») are a typical ANGLO SAXON concept of Social Security. The LATIN pattern remained rather reluctant to this individualistic scheme, and preferred a system based on solidarity, either for ideological reasons or because it is part of the cultural heritage. 

            During the General Assembly in Albufeira, the French delegation affirmed its support to the Repartition system with, as a complement, a touch of Capitalisation, under the concept of « pension savings » ('épargne retraite'). Why?

            Because even if we are aware of the effects of ageing on social security (pensions and health care system), we are still convinced that in our Society which is losing its social references, we must maintain solidarity even if we will have to adapt it.

            Indeed, this solidarity between generations must evolve towards shared efforts between working people and pensioners. We must establish a hierarchy between those who pay and those who receive. We cannot close our eyes on this reality or we will risk a generation clash.

            The fact that AGE and YFJ (the European Forum for Youth) also asked the President of the European Commission, M. Barroso, to include the concept of solidarity between generations into the social agenda of the EU confirms us in our opinion. The two European networks, which represent millions of young and old citizens, think that some steps are essential to promote more solidarity and ensure cooperation between generations.

AGE and YFJ think that EU member states must integrate intergenerational solidarity into their national programs of health care system reforms in order to create better social cohesion and long lasting social patterns.

This intergenerational solidarity will help both citizens and politicians to realize the necessary changes to face the challenge of demographic change.  

It is essential to BRING TOGETHER YOUNG AND OLD PEOPLE to create a society for all ages.

Jean Claude CHRETIEN - France