Academic journal article Social Security Bulletin

Caregiver Credits in France, Germany, and Sweden: Lessons for the United States

Academic journal article Social Security Bulletin

Caregiver Credits in France, Germany, and Sweden: Lessons for the United States

Article excerpt

Recently, analysts in the United States (US) have proposed adopting caregiver credits, or pension credits, provided to individuals for time spent out of the workforce while caring for dependent children and sick or elderly relatives. The primary objective of these credits, used in almost all public pension systems in the European Union, is to improve the adequacy of old-age benefits for women whose gaps in workforce participation typically lead to fewer years of contributions, lower lifetime average earnings, and consequently lower pensions. This article examines caregiver credits in the context of future reforms to the US Social Security system, with attention given to the adequacy of current spouse and survivor benefits and how changing marital patterns and family structures have increased the risk of old-age poverty among certain groups of women. It then analyzes caregiver credit programs in selected countries, with particular focus on design, administration, and cost.

Selected Abbreviations

AVPF l'assurance vieillesse des parents au foyer (France's first form of credit)

CNAV la Caisse Nationale D'Assurance Vieillesse (National Old-Age Pension Insurance Fund)

DB defined benefit

DC defined contribution

DRV-Bund Deutsche Rentenversicherung Bund (German statutory pension insurance scheme)

EU European Union

FRA full retirement age

MDA les majorations de durée d'assurance (France's second form of credit)

NDC notional defined contribution

OECD Organisation for Economic Co-operation and Development

PIA primary insurance amount

SSA Social Security Administration

US United States

Introduction

In recent years, analysts and policymakers have directed increasing attention to securing the future of Social Security's old-age social insurance program. To date, the majority of proposed reforms have focused almost exclusively on the long-term fiscal sustainability of the program, with measures that would reduce benefits (for example, through an increase in the full retirement age (FRA)), increase revenues (for example, through an increase in the payroll-tax ceiling), or a combination of both. At the same time, many scholars have argued for the need to complement any such reforms with measures that would improve the adequacy of benefits for certain groups, especially those that would be particularly vulnerable to benefit cuts (Reno and Lavery 2009; US Senate 2010). Among the most vulnerable of those groups is that of women aged 65 or older, a group with poverty rates almost twice that of men in the same age group. According to Social Security Administration (SSA) figures, 11.9 percent of women aged 65 or older fell below the poverty line in 2008 compared with 6.7 percent of men (SSA 2008). Poverty rates were even higher when looking at certain subgroups of women, especially among the nonmarried (16.9 percent), widowed (15.4 percent), and divorced (19.5 percent) categories. Although many factors have led to those high poverty rates, one significant factor is the substantial gap in the labor force participation of many women because of providing unpaid care to children and sick or elderly relatives. Those gaps often result in shorter work histories, lower average lifetime earnings, and consequently lower benefits at retirement than men. This is especially a concern for the significant number of women who are not eligible for current-law spouse or survivor benefits, often called auxiliary benefits, based on the contribution record of a spouse.

This article focuses on an often-considered measure to improve the adequacy of Social Security's retirement benefits for women: the introduction of caregiver credits provided for time spent out of the workforce while caring for dependent children and sick or elderly relatives. Throughout the majority of European Union (EU) member states, caregiver credits have become an established component of public pension programs used by countries to pursue a number of objectives, including improving benefit adequacy for caregivers (primarily women but also men), promoting higher fertility rates, facilitating the return to the labor force following childbirth, and simply rewarding the act of providing unpaid care. …

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