Dennis Snower: That is difficult to say. If you look at the pension systems, then Germany and Italy are currently in the best position to solve demographic problems. Spain has yet to introduce sustainable reform and France is also struggling to do so.
The demographic evolution will effect healthcare systems in a similar way, yet here all four countries are much less prepared, hardly any of the necessary groundwork has been done.
Different countries – different recipes for success?
Dennis J. Snower, President of the Kiel Institute for World Economics (IfW), answers questions about the social security systems in Germany, Italy, Spain and France. Allianz has conducted a new study on the life aims, happiness and financial planning of people in these countries.
? Mr. Snower, the countries where Allianz conducted its survey have very diverse social security systems. In your opinion, which country is best prepared for the demographic change?
Dennis Snower: "Politicians need to be completely upfront with citizens"
? What causes the greatest difficulty in implementing reforms?
Snower: The social security systems are all financed by contributions, which worked well when economies were flourishing and populations were growing. However, things have changed since then; we now have weak economic growth and ageing populations, and the social security systems are being pushed to their limits. State benefits which were once simply the norm need to be reduced and replaced through private initiatives.
Politicians, however, find it difficult to renege on their election promises and to reduce benefits, which is why reforms are introduced slowly, late, or half-heartedly. And the fact that the electorate is skeptical about these essential reforms makes the process even harder.
Politicians, however, find it difficult to renege on their election promises and to reduce benefits, which is why reforms are introduced slowly, late, or half-heartedly. And the fact that the electorate is skeptical about these essential reforms makes the process even harder.
? If there is no way of avoiding reform, then how should reforms be introduced?
Snower: Most importantly, politicians need to be completely upfront with citizens and to explain the changes needed to address the demographic problem as clearly as they possibly can. Chopping and changing as we have with the various pension reforms introduced in Germany in the past ten years only serves to destroy the confidence of the electorate completely.
Reforms should be designed in such a way that they provide security in planning and do not require further adjustment five years later on. The sustainable pension reforms initiated in Italy in 1992 and 1995, which will not be fully complete for another 30 years, are an example of how such security in planning can be provided. Nevertheless, such long time-scales can result in the sense of urgency being forgotten.
Reforms should be designed in such a way that they provide security in planning and do not require further adjustment five years later on. The sustainable pension reforms initiated in Italy in 1992 and 1995, which will not be fully complete for another 30 years, are an example of how such security in planning can be provided. Nevertheless, such long time-scales can result in the sense of urgency being forgotten.
? How can people themselves prepare for these demographic changes?
Snower: First of all, they need to realize that in the future they will need to take on much more responsibility for their social welfare than they do now, be it regarding retirement provision, healthcare or education. They will have to pay out of their own pockets for many of the things which are currently financed completely or primarily by the state. This means that many of those in low income brackets will have to change their spending habits and the way in which they provide for their financial futures. Increasingly, the consumption desires of today will collide with the financial provision goals of tomorrow.
? What role do financial service providers play in this process?
Snower: The privatization of benefits once provided by the state demands more effort from people to provide for themselves. Financial service providers can help them to do this. While they may not be able to take over the role of the state, they are able to provide people with the financial tools they need to adjust to the new reality.
This means that product ranges must be adapted to meet these new requirements. In addition to long-term savings plans for old age, for example, financial service providers will have to offer products which address people's financial needs during periods of education or training, as well as supplementary health insurance schemes.
The insurance industry needs to offer simple, cost-effective products for private provision, which enable all citizens to secure their own financial futures, even if they are in a low income bracket.
This means that product ranges must be adapted to meet these new requirements. In addition to long-term savings plans for old age, for example, financial service providers will have to offer products which address people's financial needs during periods of education or training, as well as supplementary health insurance schemes.
The insurance industry needs to offer simple, cost-effective products for private provision, which enable all citizens to secure their own financial futures, even if they are in a low income bracket.
As with all content published on this site, these statements are subject to our Forward Looking Statement disclaimer, provided on the right.
For further information
