Some 2 percentage points of the increase in pension expenditure in 1992 were due to the personal income tax reform, which grossed up both pension benefits and wages.
The end-year replacement rate increased even more dramatically, by 43 percent.
The list of sectors with early retirement privileges is long and includes miners, railroad employees, teachers, journalists, artists, creative professionals, customs officers, shipyard workers, fishermen, seamen, those working under physically strenuous conditions in the construction industry, the power sector, steel production, metallurgy, the chemical sector, forestry, the textile industry, transportation and telecommunications, public utilities, and the agricultural sector.
See Axel Boersch-Supan, “Population Aging, Social Security Design and Early Retirement,” Journal of Institutional and Theoretical Economics, Vol. 148, No. 4, December 1992, pp. 533-57.
See Boersch-Supan (1992). This calculation is based on a discount factor of 3 percent and current survival probabilities at age 60.
Retirement at this age in Germany is restricted. See Boersch-Supan (1992), p. 540.
See Robert Holzmann, Reforming Public Pensions (Paris: OECD, 1988), p. 132.
Unfortunately, there are no reliable data on the number of retirees who continue working. However, census data for 1988 indicated that some 23 percent of nonfarmer retirees received additional employment income, and 6 percent received higher employment income than pension benefits. See Rocznik Statystyczny Ubespieczen Spolecznycg 1985-1990 (Social Security Yearbook 1985-1990) (Warsaw: ZUS, 1992), p. 47.
See E. Bos and others, World Population Projections. Estimates and Projections with Related Demographic Statistics. 1994-1994 (Washington: World Bank, 1994).
See Organization for Economic Cooperation and Development, Labor Force Statistics (Paris: OECD, Paris, 1993).
This partly reflects the fact that retirees also continue to work.
For a more optimistic assessment of the effects of declining unemployment on pension expenditure in Poland, see William Perraudin and Thierry Pujol, “Framework for the Analysis of Pension and Unemployment Benefit Reform in Poland”, IMF Staff Papers, Vol. 41, No.4, December 1994, pp. 643-74.
As the number of retirees is expected to increase by 2.1 percent in 1996, pension expenditure relative to GDP would decline only modestly.
The 1993 budget reduced the pension base from 100 percent to 91 percent, which was corrected in 1994 to 94 percent. In 1995, the Constitutional Tribunal declared the original decision unconstitutional, and while Parliament overruled the ruling, it decided to reestablish the original parity.
At one stage, the authorities intended to switch the base of the indexation mechanism from wages to prices. Based on an assumption of real wage growth of 1.5 percent per year, the long run expenditure savings of such measure have recently been estimated at 14 percent for unchanged retirement age, and at 10 percent if the average retirement age is increased to 65. (See John C. Hambor, “Issues in Eastern European Social Security Reform”, Research Paper No. 9201, U.S. Treasury Department, 1992.) In practice, however, savings might be lower, because the authorities would likely face pressures to increase real pensions from time to time.