Global pension systems and their reform: Worldwide drivers,trends and challenges

Across the world, pension systems and their reforms are in a constant state of flux driven by a shifting focus, moving reform needs, and a changing enabling environment that reflect objective events but also changes in views and perception. The ongoing worldwide financial crisis and the adjustment to an uncertain “new normal” will make future pension systems different from past ones. The objectives of this article are: i) to briefly review recent and ongoing key changes that are triggering reforms; ii) to outline the main reform trends across pension pillars over the last two decades; and iii) to present key policy areas on which the pension reform community will need to focus to make a difference.     

The macroeconomic impact of reforming a PAYG system: The Portuguese case

Abstract   The article analyses the impact of various types of reform options on social security pension system financial sustainability and on a range of macroeconomic variables. The HERPOR model is used to consider the likely effects of parametric reforms of the existing pay-as-you-go system, as well as those of a systemic reform. The article concludes that the former are sufficient to ensure financial sustainability, although they should be accompanied by employment implementation measures. The article concludes that a fully pre-funded system does not seem to be a viable option for policy-makers in the redesigning of social security pension systems, due to the high transition costs involved.     

Pension reform in Sweden

Pension reform has been placed on the political agenda in many countries. The Swedish parliament has decided to make significant changes in the pension system. This article presents the Swedish pension reform, which goes further than the changes in other European countries. According to the Swedish pension reform, there will be a guaranteed pension that redistributes life-cycle incomes from rich to poor and an income-related actuarial pension without any intra- and intergenerational redistributive effects (with a few exceptions). The idea is to have an actuarial contribution-defined pension within a pay-as-you-go system.     

Working life and retirement pensions in Spain: The simulated impact of a parametric reform

This article aims to offer an ex ante evaluation of the impact of a parametric reform of the Spanish pension system that would involve increasing the reference period used to calculate benefits, an approach proposed many times by various actors in the socio‐economic field. Such gradual change may be categorized as a non‐structural reform of the pension system. This contrasts with reforms of a structural nature that have been very popular in Latin America and elsewhere, involving the creation of defined contribution individual account schemes. As regards the parametric reform proposed in this article, the main findings indicate that it would have a small but negative impact on pension income for pensioners and would reduce income distribution.     

Economic reform when institutional quality is weak: The case of the Maghreb

Institutional improvement can be a very slow and uncertain process when institutional quality is weak. In the meantime, countries have launched far-reaching economic reforms whose success is predicated on a large investment response. However, the uncertainties attending institutional reform can raise perceptions of risk, thereby muting investment responses. Using new values of institutional quality for three Maghreb countries (Algeria, Morocco and Tunisia), which we derive from fuzzy-set based transformations on freedom indices, we show that moving from low institutional quality to a stage of ‘partial improvement’ may reduce income per capita, with financial and trade reforms having unintended negative effects.     

Multi‐pillared social insurance systems: The post‐reform picture in Chile,Uruguay and Brazil

This article focuses on an analysis of social insurance models and reforms in Chile, Uruguay and Brazil. Noting that these three countries are following different reform trajectories, the article explores trends in the restructuring of each of these insurance systems across the course of successive reforms. In the systems, different trends are supporting a closer link between contributions and benefits, according growing importance to private individual accounts and favouring the expansion of the role played by social assistance. These trends all suggest a move towards various forms of multi‐pillared social insurance, but with uncertain results in terms of redistribution and the dynamics of the fundamental objectives of social insurance.     

Political risk and pension privatization: The case of Argentina (1994-2008)

Proponents of pension privatization in Latin America argued that systems of private fully pre-funded defined-contribution individual accounts would be better insulated from politics than was the case with public pay-as-you-go pension systems. However as the Argentinean case demonstrates, most recently with the 2008 nationalization of its private individual accounts system, transferring pension management and investment to the private sector does not necessarily reduce or eliminate political risk. In fact, the implementation of systems of individual accounts creates a new set of political risks, in part because they are a potential financial resource for governments, especially during times of economic stress. This article describes the range of political risks inherent to individual account pension systems, with specific reference to Argentina's 1994-2008 experience with privatization.     

Pensions in Nigeria: The performance of the new system of personal accounts

In 2004, Nigeria copied the 1981 Chilean pension reform and established a funded system based upon personal accounts. The new system was neither appropriate for a country such as Nigeria, nor did it meet aspirations of improving pension coverage or helping economic growth. The current financial and economic crisis hit the scheme in so far as it hit stock values. However, more important has been the negative real interest rates that can be earned on government bonds and on bank deposits — where the majority of contributions are invested. Bank scandals and rising fiscal deficits do not breed confidence in the system or the government's ability to deliver meaningful benefits in old age.     

Reforming pensions: Principles, analytical errors and policy directions

This article, sets out a series of principles for pension design rooted in economic theory: pension systems have multiple objectives, analysis should consider the pension system as a whole, analysis should be framed in a second-best context, different systems share risks differently, and systems have different effects by generation and by gender. That discussion is reinforced by identification of a series of widespread analytical errors — errors that appear in World Bank work, but by no means only in World Bank work: tunnel vision, improper use of first-best analysis, improper use of steady-state analysis, incomplete analysis of implicit pension debt, incomplete analysis of the impact of funding (including excessive focus on financial flows, failure to consider how funding is generated, and improper focus on the type of asset in trust funds), and ignoring distributional effects. The second part of the article considers implications for policy: there is no single best pension design, earlier retirement does little or nothing to reduce unemployment, unsustainable pension promises need to be addressed directly, a move from pay-as-you-go towards funding in a mandatory system may or may not be welfare improving, and implementation matters — policy design that exceeds a country's capacity to implement it is bad policy design. We illustrate the ranges of designs of pension systems that fit the fiscal and institutional capacity constraints typical at different levels of economic development. The potential gains from simplicity imply that a country capable of implementing an administratively demanding plan does not necessarily gain from doing so. New Zealand has a simple pension system through choice, not constraint.     

The retrenchment of second‐tier pensions in Hungary and Poland: A precautionary tale

In 1997, Hungary and Poland led Central Europe in partially privatizing their national pension systems, diverting a portion of public pension contributions to privately‐managed individual investment accounts. In the aftermath of the global economic crisis, both governments retrenched these second‐tier schemes: Hungary (December 2010), by ceasing to fund the accounts and recouping most workers' existing balances; and Poland (April 2011), by reducing the diversion of contributions to the second tier. The factors that drove these retrenchments are traced to the original 1997 second‐tier designs, which omitted key specifications related to financing the accounts, private benefit design, and the regulation of private management fees. While both governments tried to compensate for the missing design specifications during implementation, the results were limited. By reducing investment returns and raising borrowing costs, the global economic crisis brought the problems to a head. The conclusion highlights some outstanding issues whose resolution will shape the retrenchments' long‐term impacts.     

城镇职工基本养老保险基金“收不抵支”原因分析与对策选择

目前我国城镇职工基本养老保险基金当期收支总体上"收大于支",运行状况良好。但部分省份的城镇职工基本养老保险依然存在当期"收不抵支"现象,并且该统筹地区出现的养老金缺口呈现出扩大趋势,一定程度上影响了现行企业养老保险制度的持续健康运行。本文在总结分析这些省份城镇职工基本养老保险基金"收不抵支"问题产生原因的基础上,进一步提出解决该问题的思路与对策。     

Pension privatization in crisis: Death or rebirth of a global policy trend?

From 1981 to 2007, more than thirty countries worldwide fully or partially replaced their pre‐existing pay‐as‐you‐go pension systems with ones based on individual, private savings accounts in a process often labelled “pension privatization”. After the global financial crisis, this trend was put on hold for economic, ideational, and institutional reasons, despite a rise in critical indebtedness that has facilitated pension privatization in the past. Is the global trend towards pension privatization dead or in the process of being reborn, perhaps in a somewhat different form? Several recent trends point to rebirth as policy‐makers scale back public and private pension systems, attend to minimum pensions and “nudge” rather than mandate people to save for retirement.     

A macro‐financial analysis of pension system reforms in emerging Europe: The performance of IRAs and policy lessons for Serbia

The article explores the initial macro‐financial performance of partial pension system “privatizations”— involving privately‐managed individual retirement savings accounts (IRAs) — undertaken in many emerging European countries. Using empirical data for a period of close to a decade, the evidence shows that returns on privately‐managed IRAs have been below the implicit rate of return of public pay‐as‐you‐go (PAYG) systems. High operating costs and undeveloped capital markets are identified as major contributing factors to the failure of privately‐managed IRAs to meet reform expectations. In light of empirical evidence, Serbia is advised to focus on parametric PAYG reforms and to avoid reforms that involve the partial “privatization” of the pension system.     

Testing old theories in new surroundings: The timing of first social security laws in Africa

This article examines the timing of the introduction of four major social security programmes — work accident insurance, sickness benefits, pensions, and family allowances — in 43 African countries. Further, it explores whether legislative structure, dominant religion or the colonial past of the country is of importance when we control for year of independence, prosperity, degree of democracy, government stability, industrialization and the size and ethnic homogeneity of the population. On the basis of Cox hazard rate modelling it is concluded that industrialized, homogeneous and rather populous countries that were under French rule tend to be pioneers in African social security legislation.     

Participation of seniors in the Argentinian labour market: An option value model*

The aim of this article is to define the factors which determine seniors' decisions to continue to participate in the labour market in Argentina. An option value model is developed. This model is used to produce estimates based on micro‐data drawn from household surveys. These indicate the relative importance of the impact of conditions governing eligibility for benefits on decisions to remain actively employed. Work history is found to be the main factor in such decisions. Inadequacy of social security benefits and accumulated human capital also create incentives for economic participation in old age. On the basis of these findings, compensatory policy adjustments, to improve coverage, increase benefit levels and improve employment conditions for seniors, are proposed.     

Notional defined contribution pensions with public reserve funds in ageing economies: An application to Japan

Several developed and developing countries have recently adopted a notional defined contribution (NDC) approach to old‐age pension reform. The NDC is essentially a non‐pre‐funded defined contribution retirement system, in which contributions are credited with a “rate of return” related to aggregate payroll growth, and individual account accruals are maintained in a book‐keeping system. Payouts are annuitized based on the expected mortality of each succeeding retiring cohort. NDC plans may be identified with appropriately calibrated Pay‐As‐You‐Go plans in demographic equilibrium, but the two paradigms diverge when demographic shift is introduced. This paper investigates the key actuarial and economic implications of alternative NDC rules, with a particular focus on Japan, the world's most rapidly ageing economy. We examine the potential role for pension reserves in transitioning to an NDC system, and we show these can be used to smooth the impact of demographic transition to an older society. Finally, we show that countries such as Japan could elect to use pension reserves accumulated in the past to facilitate the transition to an NDC system.     

社会保障制度改革与政治稳定:西方的经验分析

西方社会保障制度不仅与经济利益紧密相关,而且与政治斗争结伴而来,逐渐成为资本主义政府的一项基本功能,成为资本主义政党政治的一个主要内容,对稳定西方资产阶级统治和国家政权发挥了重要的政治功能.20世纪70年代中期以后,西方各国纷纷改革社会保障制度.由于社会保障制度具有刚性和权威性,甚至已经和西方政治制度融为一体,社会保障政策成了政治体制中不可或缺的组成部分,因此,社会保障制度的改革牵涉到公众的既得利益,要经过复杂的政治程序和相当程度的公民认同,必须谨慎地加以推进.     

Determining factors leading affiliates to transfer from an individual accounts pension scheme to a pay-as-you-go pension scheme: Evidence from Argentina

Prior to the recent implementation of the Argentine Integrated Social Security System (SIPA — Sistema Integrado Previsional Argentino ), the 2007 reform represented the first major change in Argentina's old-age social security system since 1994. For the first time, workers contributing to the private defined-contribution individual accounts scheme were able to choose freely to move over to the public pay-as-you-go (PAYG) scheme. This study is an attempt to analyse the special characteristics of those who opted for transfer to the public PAYG scheme and to discover whether the behaviour of these individuals is in line with that of a "simulated worker" attempting to optimize income. The analysis includes an estimate of the probability that individuals with certain characteristics will transfer.