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80% of French and Germans say pensions are at risk

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EUROPE – More than 80% of French and Germans think that in 10-15 years their domestic pensions system will not be able to pay full benefits in the light of future demographic imbalances, according to a study by three leading European academics.

The survey entitled: “Would you like to shrink the welfare state? The opinions of European citizens” by Tito Boeri and Guido Tabellini at Bocconi University in Milan, and Axel Börsch-Supan at the University of Mannheim, reveals that almost three quarters of Italians share the same view on the fragility of future state retirement guarantees.

However, their Spanish counterparts it seems are less perturbed, with only 43% believing the Spanish pensions system to be unsustainable.

Significantly, the survey highlights the paradox facing European decision makers over the question of pension reform.
While most Europeans currently want to maintain the status quo of their state pension provision, a significant number feel that reform of their domestic system will be necessary.

Accordingly, 75% of the adult population in France, Germany and Italy think that in the next ten years there will be a “significant” reform in their public pension arrangements.

However, the welfare state status quo is supported by a majority, and not just a powerful minority, the survey reveals.
In France, 65% of those questioned want to either maintain the size of the system or increase taxes.
In Germany the figure rises to 73% and in Spain it reaches 84%, with 31% of those surveyed willing to pay more taxes.
A relative majority in Italy is in favour of tax reduction, although an absolute majority is against it, 43% want to pay less, 40% want to maintain the existing level and 17% are willing to pay more.

The report suggests that individuals wishing to opt out of public pension contributions but opposing a smaller welfare state may be misinformed about the true cost of social security.
“These respondents oppose shrinking the large European welfare state because they discount its burden, while at the same time they wish to opt out because they do not trust long-run sustainability. The significance of the variables “informed” and “university degree” are also consistent with our most mundane explanation, a misunderstanding of the opting-out question,” says the study.

One important conclusion points out that slightly under 50% of the survey’s respondents know that extra government money has to be paid to support state pensions.
Significantly, in Spain 28% believe that the public pay-as-you-go pension system runs a surplus.

When asked whether the respondents would want to pay only half their current contribution to the state pension system and receive the rest in their pay slip rather than when they retire, 47% of Germans and Italians say yes, 24% of French agreed to opt out and 19% of Spanish like the idea.

A further question implying that the remainder would go to a mandatory private pension plan gets more support; in Germany and Italy 67-71% would rather do this than pay for full public pensions; 63% of the Spanish agree and 50% of the French concur.
However, if this meant that respondents received a smaller public pension in order to cover the transition period, then most respondents declined the offer.

Altogether, in all four countries little more than 10% of those surveyed said they were willing to opt out if they had to bear the transition burden as well.

The survey, carried out last year, questioned 1000 people in France, Italy and Spain, 1500 in the former West Germany and 1000 in the former East Germany.

The report appears in the Spring 2001 Economic Policy journal of the London based Centre for Economic Policy Research.

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