At first glance, “adequacy” seems a simple word, one whose definition can be readily understood. Merriam-Webster describes it as “sufficient for a specific requirement." But don’t be mistaken, this seemingly harmless word is becoming loaded with complex meanings even as experts discover how ill prepared we are to actually define it. And, as they struggle to determine its parameters, chart the components of personal income and wealth, and measure the social standards that could contribute to an understanding of adequacy, the word itself is assuming the potential to become one of the most explosive in pension politics.
Expressed another way, adequacy is the question: “How much is enough?” Ask that in the context of pensions and you immediately touch upon a topic sensitive to millions of current and future retirees: “How much will I receive in my retirement benefits?” Unfortunately, and there is no other way to couch this, most of us whether retired or retiring in the future will experience a significant gap between what we could reasonably expect to receive based on past experience and what we will actually receive in the hand.
Anger at pension reforms has spilled out onto the streets in Paris, Athens and even Beijing, and unless politicians tread warily, we will undoubtedly see it elsewhere. However, if politicians bow to popular pressure – and all voters are potential members of the retiree lobby group – the danger is that they will defer decisions that could ultimately save the retirement system.
How did this situation arise? German chancellor Otto von Bismarck can be considered the godfather of European social security. In 1889, he introduced an old age provision system as a means to buy social peace. It was primarily meant to be an insurance in case of invalidity and only a subsidy for old age. But as the legal retirement age was 70, double the then average life expectancy of 35 for men, hardly anyone received a pension. Most contributors failed to reach the age to receive benefits, but if they did they found the amount paid out only just above starvation level.