The following commentary by the Austrian economist Roman Raab is based on his dissertation, Pension Reform and Retirement Incentives: Evidence from Austria, [available from http://etd.gsu.edu/theses/available/etd-07312008-120625/ ]. From 2003 to 2008, Raab worked as research assistant in the Department of Economics at Georgia State University. He completed his dissertation in August 2008.
Roman Raab
Over the past decades, retirement systems in both Europe and North
America have become heavily discussed issues in the political debate.
Looking at Austria, it appears to be a country full of disability
pensioners and early retirees. Important reforms begun in the 1990s
have so far only partially repaired the weaknesses of the relatively
expensive public pension system for private sector employees (ASVG). In
the long term, an aging society will run into a situation in which
old-age income security could potentially collapse, unless the whole
system adapts to the new circumstances of an increasingly aging
population. One possible scenario for reform is an increase in the
penalty for early retirement; however, more problematic scenarios
include an increase in the retirement eligibility ages, an increase in
social security contribution rates, a decrease of benefits, and an
increase in immigration. Some major issues of the current Austrian
pension system identified in my research are financial incentives
facilitating early retirement, the very generous granting of disability
pensions, the different retirement regulations for males and females,
and the almost singular source of old- age income (only about 9 percent
of employees are eligible for company pensions as a second pillar of
retirement income).
Pension systems in a nutshell: fully funded vs. pay-as-you-go pension systems
Retirement pension plans are mandatory or non-mandatory savings
accumulated for a person’s retirement period. In general, there are two
types of pension plans, fully funded or pay-as-you-go systems.
In fully funded systems, a person saves an amount of money during his
employment period in an individual account. The person receives this
amount of money as an annuity once he retires. In a pay-as-you-go
system, the generation currently at work pays for the retirement
benefits of the generation currently retired. The major disadvantage of
a fully funded system is the risk of uncertain return on the assets
invested in the financial market. One might not receive the annuity
desired due to returns lower than expected. The annuity depends on the
overall economic situation, as well as on the degree of risk implied in
a pension fund portfolio.
In contrast, a pay-as-you-go system is less risky but its returns
depend strongly on the ratio of working to retired population. In an
increasingly aging population, as it is the case in most OECD
countries, the finances of a pay-as-you-go system are increasingly
threatened by an exploding proportion of people in retirement.
Therefore, government often increases social security contributions of
the generation at work in order to keep the intergenerational finances
in balance.
Many countries rely on a two- or three- pillar retirement system.
Usually, the first pillar is a pay-as-you-go pension plan. The second
pillar provides a fully funded pension. Often, there are also
employers’ pension plans that complement the first two pillars. The US
is a country in which retirees receive portions of their pension from
three or even more pillars.
It was September 10, 2008, when the world’s largest experiment, the Large Hadron Collider (LHC) started its operation. Located at CERN, the European Particle Accelerator Laboratory at the Franco-Swiss border near Geneva, the LHC particle accelerator resembles an enormous ring with a circumference of 27 km (17 miles), buried 100 m (328 feet) underground. When it runs at full power, the LHC is able to accelerate protons to a velocity that reaches 99.9 percent of the speed of light, so each particle attains an enormous kinetic energy. At regular time intervals and deep in the center of dedicated particle-detectors at specific places in the ring, the accelerated protons are forced to follow a course that ends in a head-on collision, which releases the kinetic energy in an event that resembles a “mini-Big Bang.”
