Fairness in the Pension System | Max-Planck-Institut für Sozialrecht und Sozialpolitik - MPISOC

Research Projects

Fairness in the Pension System

A differentiated and more beneficial treatment, dispensed only to certain individuals in the social security system, needs a justification in order to comply with the principle of non-discrimination or with the constitutional right of equal treatment. Governments have often provided special pension benefits to certain types of workers, conferring a benefit on one class of workers to the exclusion of the other, and thereby leaving future generations with rights and benefits with dubious legal justifications and socio-economic consequences. In fact, most countries provide special benefits to workers in arduous or hazardous jobs based on the grounds that they compensate workers for the hardship of the job, protect workers from the hazards of the work, or, more rarely, are required to realize equality and implement proportional justice. Differentiated benefits have been advanced as a fair and adequate measure to counterbalance the trend of increasing the retirement eligibility age for workers, which imposes a disproportionate burden on those whose health suffers due to arduous or hazardous work. These individuals are the ones who are most at risk with the current policy shift towards longer working lives.

While recent reforms introduced a full-fledged system providing special benefits to such workers in Italy and France in order to create just rights, other countries such as Germany and Japan have reformed their systems and cut those benefits in order to eliminate unjust privileges. In Brazil, China, and Russia, the norm that allows workers in arduous or hazardous jobs to retire earlier is understood to perform a crucial social role and has remained virtually intact throughout all recent reforms. The specification of the functions that such differentiated treatment truly performs in reality and its legal justification are relevant not only for legal theory and public policy, but also for constitutional adjudication. The French Constitutional Council, for instance, recently had to decide whether a more beneficial treatment of workers in arduous or hazardous jobs violated the principle of equality, and thereby whether or not its introduction through the recent pension reform proposal was constitutional. The Council considered how not only workers incapable of working, but also workers who were exposed to hazards in their jobs were not in the same position as other ones, and could therefore, in principle, be granted special treatment with no violation of the principle of equality.

Still, several crucial questions remain. In what dimensions are workers different? This depends, as explained below, on the current amount of effort and energy workers spend on their work as well as on the risks they are exposed to: the present risk of injury and accident as well as the future risks of incapacity, illness, and reduction in quality and expectancy of life that arise due to the type of work these workers perform. The suitability of special pension benefits to compensate workers for or protect them from each of these harms depends on the structure of the market in which they intervene. This determines to what extent workers are already compensated through wage premiums for some of those harms, whether and to what extent they still need to be compensated for other harms, and whether there are other branches of the social insurance system that already provide such compensation. Moreover, at what cost should their situation be equalized? This answer determines the extent to which the norm should be shaped to foster the prevention of arduous and hazardous working conditions by providing incentives for employers to invest in technologies that can avert the hazard and who should pay for the costs of the special benefit. In the end, the most relevant question that needs to be addressed is what kind of equality, if any, should be offered, and to whom and when? It determines to which extent the statutory retirement age and the contributions rates owed by employers and employees should differ depending on the hazards that workers are exposed to.

This project analyses the functions and justifications advanced by scholars, courts, and legislators for differentiated and more beneficial treatment of those workers by applying the proportionality test: any legal norm that infringes a fundamental right such as equal treatment or non-discrimination needs to be legally justified. For that to happen, the norm must pursue a legitimate goal, be apt to achieve it and also be necessary in the sense that it is the least intrusive means. Moreover, it shall not be out of proportion, given the intensity of the interference and its negative consequences, on the one hand, and the pursued goal and its positive consequences, on the other hand.

Proportionality is an adequate scholarly and judicial device pervasive across the globe to manage conflicts of rights or interests because it considers, in the aptitude and necessity subtests, the causal effect of legal norms. It is hence concerned with efficiency and optimization in the use of means and considers what is factually possible to achieve. Lastly, if the norm has a legitimate goal, is apt to achieve it, and is necessary for it, then the test calls for an empirical assessment of the harm to each of the conflicting interests – optimization relative to the legal possibilities, or “balancing” – in the last step rather than attempting to establish what is right or wrong, something that is complicated in divided and plural societies.      

This project further associates economic analysis with the proportionality principle and applies it in the analysis of the aptitude and necessity of the norm to achieve different potential goals and to perform functions that scholars claim and allege it performs. The norm does not operate in a vacuum, but rather in the labor market, and it will affect equilibrium wages as well as levels of employment in different sectors in a systematic and predictable manner. It benefits not only those employees entitled to more beneficial treatment but also, if it is fully or even only partially subsidized, employers that hire them. In this manner, it often fosters the very type of arduous and hazardous jobs that it attempts to compensate for, or to avert, multiplying the evil it must then seek to redress.

Results provide insights into why the norm that provides special pension benefits is in place, and how special pension benefits should be designed to realize legitimate goals. Therefore, the project is normative and does not refrain from arguing that special pensions should not be completely eliminated because there is the need to realize legitimate legal goals and principles. Moreover, in specifying the negative consequences of the norm, and comparing them with alternative policies, the project specifies when special pensions could and should be substituted for alternative policies, what the main threats are to their implementation and, consequently, to achieving legitimate legal goals.

The analysis also reveals how the norm is not apt to achieve compensation and prevention concomitantly, and how which one will be furthered depends crucially on who pays for the benefit. Moreover, the norm is only necessary to compensate or to protect workers in very rare and specific cases, and even in these ones, it is not strictu sensu proportional to the negative consequences it imposes on the economy. In the end, the justification for the norm lies in the requirement of equal treatment and in the need to treat unequals unequally in the measure of their inequality when establishing taxes and benefits that groups of workers pay and receive from the social security system.

Contact Person(s)

Sergio Rubens Mittlaender Leme de Souza, Ph. D.