The political process and phase-in period of pension reforms

In December 2022, the House of Representatives of The Netherlands voted in favor of a major redesign of the funded pillar of the Dutch pension system. This new pension law is the culmination of (at least) 12 years of negotiations between social partners, the government, and parliament. The Netherlands is not the only country which is in the process of implementing a major redesign of its pension system; Italy’s government started new negotiations with labor unions in January, and the French government encountered massive protests unified in the yellow vests movement. Those countries that did successfully redesign their pension systems, usually did this after external pressure (e.g. Greece) or after a long political process (e.g. Germany and Sweden).

Recently, Bi & Zubairy (forthcoming), Beetsma, Klaassen, Romp & Van Maurik (2020), and Romp & Beetsma (2022) used self-constructed databases of pension reforms to analyze the timing of those reforms and the response of workers close to retirement. Bi & Zubairy found that the phase-in period has a significant effect on the labor force participation rates of the elderly. Their analysis requires that the pension reforms are unexpected exogenous shocks. Beetsma and co-authors, however, concluded that the nature of pension reforms was driven by demographic developments and that the timing of those reforms was determined by the business cycle. The predictability of the ageing process, and the fact that many pension reforms were preceded by years of negotiations, make that those reforms can hardly be classified as a surprise to those close to retirement.

This begs the question whether an ageing society and business cycle conditions affect the length of the political process and the phase-in period of pension reforms? Do countries with a more pressing ageing problem legislate reforms faster and implement reforms with a shorter phase-in period? If so, then the ever increasing old-age dependency ratio will result in more unexpected reforms, with shorter phase-in periods, which increases the uncertainty surrounding retirement planning.

In this project, we will answer this question. We will first extend the dataset used by Bi & Zubairy using the unpublished database with all reforms underlying Beetsma et al. (2020) and extend the sample to 2022. In the second part of this project we will use the data on the legislation process and the phase-in period to distinguish between truly unexpected reforms with a short implementation phase, triggered for example by a financial crisis, and reforms that were the result of a long political process, which as such cannot be classified as a surprise.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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