Pension indexation for retirees revisited – Normative patterns and legal standards

Abstract

Maintaining adequate pension levels throughout the entire retirement phase is a persistent challenge in old-age protection. Most public pension schemes in OECD (Organisation for Economic Co-operation and Development) countries provide for some form of indexation for pensions in payment. These mechanisms have been object of frequent revisions for different purposes, in particular across Europe. This article explores the social and financial policy objectives linked to standard indexation parameters in public pension schemes, and offers a rough taxonomy of additional factors used to modify traditional indexation arrangements, with a special focus on changing rules and practices adopted in the European Union (EU) area after the 2008 international economic and financial crisis. Analysis suggests that early responses were mainly driven by cost containment ideas, whereas more recently, a subtle shift towards adequacy-oriented interventions can be noticed. The article argues that restrictive pension indexation rules in combination with overall retrenchment of public pension provision fail to take into account the increasing duration of retirement and corresponding pension erosion. Such failure calls into question not only income security during retirement as a major objective of old-age pensions but also compliance with international standards of social security set by the International Labour Organisation (ILO) and the Council of Europe. More social policy research is needed in view of the increasing complexities of indexation rules, as shortfalls in indexation can cause significant impairment in the living conditions of older pensioners, predominantly women.