Equitable Normal Pension Age Modified in Terms of Fertility Level

Tomáš Fiala , Prague University of Economics and Business
Jana Vrabcová, Prague University of Economics and Business
Jitka Langhamrová, Prague University of Economics and Business

An often-used measure to ensure financial stability of the pension system is raising the retirement age. This measure is considerably unpopular and therefore it needs to be implemented in such a way that it can be considered relatively fair. A known proposal is the idea of equitable normal pension age (the ENPA), which assumes the same relation between the expected total time of receiving a pension and the expected total time of economic activity for all cohorts. The old-age pension system in many countries is based on the pay-as-you-go (PAYG) principle, not on the cohort one. The ENPA would in such a case guarantee the financial stability of the pension system only in the case of population of a stationary type, i.e. under fertility at replacement level (or adequate compensation of lower fertility by foreign immigration). The proposed fertility adjusted ENPA could be determined by comparing the relation between the total years of receiving a pension of a (parents’) cohort and the total years of economic activity of the cohort of their children. The size of this cohort depends on the completed fertility of the parents’ cohort. An indicator of the financial burden of the pension system is the adjusted old-age-dependency ratio (AOADR) defined as the ratio of the population at retirement age to the population at productive age using the actual retirement age threshold instead of standard 65 years. The article will present calculation of standard ENPA and fertility-adjusted ENPA and corresponding AOADR for Czechia and some other countries.

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 Presented in Session 65. Policy Issues on Ageing: Employment, Pensions and Public Perceptions