Info is ‘key to pension reform’

By Anna McLauchlin

Date: 27/10/05

Pension reform in Europe stands a better chance of success if citizens are better informed of the underlying reasons, according to a new study.

With Belgium bracing itself for a general strike tomorrow (28 October) over proposed pension reforms, a report from the Centre for Economic Policy Reform estimates that an average middle-aged woman with moderate political views is 8% more likely to back reforms if she is informed that the pension system is in deficit.

According to the study, there is a general assumption that opposition to reforms, seen most recently in Belgium but also in France and Germany, is a result of a selfish generation that does not care about the financial wellbeing of its offspring but this is misguided, it claims.

Its findings, based on a sample of Italian citizens and their reactions to reforms that either raise retirement ages or cut pension benefits, suggest that people simply do not understand the real cost of pension systems and how they work.

"To increase public support for pension systems, governments in countries with large and unsustainable public pension systems ought to devote more effort and resources to informing citizens about the basic functioning of pay-as-you-go pensions, about its actual costs, and the net position of individual contributors," it concludes.

Media coverage may be insufficient, the study's authors, two researchers from the University of Bocconi in Italy, claim, as people tend to read articles that confirm their fears.

Instead governments could follow Sweden's example, where citizens receive information on their pensions in 'orange' envelopes each year.

The letter tells them how much money they have accrued in their pension fund so far and, according to expected growth rates, how much they can expect to receive every month when they retire.

According to a study by the Centre for Economic Policy Reform pension reform in Europe stands a better chance of success if citizens are better informed of the underlying reasons.