30 This is, of course, not unique to the transition economies. The same reasons explain why pensioners in developed countries have, in the course of the last 20 years, become less poor than the average, and children poorer than the average (the exact reverse of the situation twenty years ago).°* The feeling of "affinity" in transition economies was increased as many redundancies were "solved" through early retirement. Those who have not retired, but see themselves threatened by an early retirement, also try to protect themselves and vote for maintaining favorable pension rules.

# The (limited) reform experience

It is not surprising that against this background, pension spending increased, and almost no countries except the Baltics were able to change the pension formulas, with a view of reducing the fiscal burden, let alone to reform their pension systems.

The score card of pension reform is indeed limited. Pensionable age was raised in Estonia (by six months per year until it reaches 65 for men and 60 for women), Czech republic (two months per year until it reaches 62 for men and between 57 and 61 for women), Slovenia (by 2 years) and Romania.* These increases, however, do not lead to substantial savings in the short-run. Raising the retirement age by six month every year for both men and women, saves (in case of Poland) only about 0.3-0.4 percent of GDP annually.© Moreover, to the extent that the young unemployed workers and the old workers are substitutes, one needs to offset against these savings the additional outlays for unemployment benefits. If the young and the old are perfect substitutes, and an average pension is twice as high as an average unemployment benefit, savings are only one-half of the estimated amount.

More important reforms are needed for a reduction in overall spending. Reduction in spending combined with the need to protect the lowest pension (i.e. to keep it at least at the level of the poverty line), translates into a compression of pensions. The compression may be come about in three different way.

e A flat or almost flat pension structure where everyone receives the same, or almost the same, pension can be introduced either as a temporary or permanent measure. The implicit,

> *‘In the US, the share of the aged (65+ years of age) in the bottom quintile of consumption expenditures decreased from 38 percent in 1960-61 to 22 percent in 1991-92. At the same time, their share in the top quintile went up from 10 to 15 percent. The reverse change for the young people, mostly children, is even more striking. In 1960-61, only 13 percent of the bottom quintile were those under 25 years of age. In 1991-92, 36 percent of the bottom quintile were the young (see Johnson, Shipp and Jacobs, 1994, Appendix Table E). According to US Bureau of the Census, over the same period, the percentage of the poor among the aged decreased from 35 to 12 percent; for the population as a whole, the decline in the poverty rate was from 22 percent to 13 (see Levitan, 1990, p.18).

Hungary is planning to do the same although the bill has not reached the parliament yet.

> “A point was made that increasing the retirement age was particularly unfair toward women who, in the former Soviet Union, raised children in difficult conditions while continuing to work. According to one opinion, women’s retirement age should be reduced by a year for each child (see Diena, Russian edition of a Riga daily, February 2, 1995, p.2).