From Austerity to Austerity: The Political Economy of Public Pension Reforms in Romania and Bulgaria

This article discusses the trajectories of pension system reforms in two of the latecomers to the EU: Bulgaria and Romania. It finds that over the past two decades, the two countries pursued increasingly dissimilar public pension reforms for managing their respective public pay‐as‐you‐go pension systems. Using a political institutionalist theoretical framework, I argue that the divergence between the two cases is attributable to multiple factors. First, different temporary political compromises between national and international actors generated reforms that retrenched public pensions and introduced mandatory private accounts. Second, pension reforms often had unintended consequences that limited their intended impact. Third, incremental adjustments introduced by governments in response to political pressures caused alternating phases of austerity and generosity that catered to different constituencies in each country. In Romania, reform outcomes amounted to a moderately generous pension system, financed through relatively high contribution rates with a small funded component, while in the case of Bulgaria, the pension system evolved into a meagre programme, financed through low contribution rates and a larger private pillar.     

The challenge of pension reform in Georgia: Non‐contributory pensions and elderly poverty

Georgia's national social security system offers almost universal non‐contributory basic pension coverage. The basic pension has, to date, proved effective in dealing with old‐age poverty. But Georgia's fiscal constraints and ageing population also highlight the importance of improving the pension system, in order to ensure its sustainability. This article presents policy reform choices, which suggest that, in Georgia, pension reform might include increasing the statutory retirement ages and reducing the generosity of benefits through means testing. The case of the Georgian non‐contributory basic pension might hold value for some low‐ and middle‐income countries that are considering the implementation of, or expanding coverage under, a non‐contributory pension programme.     

The public pension system in Taiwan: Equity issues within and between systems

This article analyses the challenges facing the New Public Service Pension Fund System in Taiwan, China. After less than two decades of operation, this young system is facing financial imbalance and is embroiled in controversy regarding the generosity of its benefits provisions. The article first introduces Taiwan's different systems for old‐age security, with a focus on that for general public‐sector employees. It then addresses the financial challenges facing the general public‐sector pension system, including the rising cost of its benefits for all taxpayers. Finally, a number of possible reform directions are suggested, including lowering benefit levels, making qualifying criteria more stringent, or establishing a new system. With regards to the latter, any proposed new system must seek to satisfy the goal of longer‐term financial soundness while realizing optimal fairness among all stakeholders including taxpayers.     

Evaluating the Possible Impact of Pension Reforms on Elderly Poverty in Europe

Since the 1990s, reforms have changed substantially both the nature of state pension provision and the level of generosity. This article tries to assess the impact of these changes using estimates of pension wealth for a number of hypothetical cases. By focusing on all prospective pension transfers rather than just those at the point of retirement, this approach can provide additional insights, especially on the impact of changes in benefit indexation. These estimates corroborate existing evidence that reforms have decreased generosity significantly. Moves to link benefits to contributions have made systems less progressive, raising adequacy concerns for certain groups. The reforms have, in particular, strengthened the need of ensuring better access to labour markets, of having in place adequate crediting arrangements and minimum pensions.     

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 interaction of pillars in multi‐pillar pension systems: A comparison of Canada,Denmark, Netherlands and Sweden

Canada, Denmark, the Netherlands and Sweden have advanced multi‐pillar pension systems. Using micro‐simulations, this article presents a close examination of the interaction of pillars in these countries. The relative importance and the role of the different pension pillars vary from country to country, and according to age, income, gender and socio‐economic dimensions as well as between generations. A further area of investigation is the mitigation capacity of the four pension systems. On the one hand, adverse labour careers lead to lower life‐time earnings and lower private pension accruals. On the other hand, these effects are mitigated through the design of pillars and their interaction. Mitigation is important to income security and stability in retirement and to post‐retirement income distribution. However, mitigation mechanisms come at the cost of incentives. Moreover, in many countries, the generosity of public benefits is set to decrease – increasing the importance of private pensions. This will shift risk and uncertainty from employers and pension institutions to individuals. Thus, risks and uncertainties related to private pensions will become more important, raising questions about the division of responsibilities between public and private pensions, and about the potential of mitigating such risk through pillar interaction. These concerns are further reinforced by labour market changes. Although a pension system free of distortions is inconceivable, this article seeks to contribute to addressing how mitigation should be designed, and how mitigation and risk sharing should be balanced against incentives, challenges which are as much political as technical.     

Convergence or divergence? How the financial crisis affected European pensioners

The Member States of the European Union entered the financial crisis with very different pension systems. Although the use of standard adequacy measures suggest small impacts from the crisis, alternative measures based on pension wealth estimates indicate stronger effects. While the largest continental systems were left relatively unscathed by the crisis, Mediterranean systems were cut back significantly. This should lead to considerable convergence in system generosity across countries. Despite the cuts, state pensions in the stressed economies should still be generous enough to keep the majority of pensioners out of relative poverty, but this depends on a relatively quick turnaround in labour market performance in these countries.     

Does a universal non-contributory social pension make sense for rural China?

China’s pension reform during the past three decades has allowed a majority of China’s population to be covered by a pension scheme. Of particular note has been the New Rural Pension Scheme (NRPS), a voluntary programme introduced starting in 2009. One goal of our analysis is to assess that pension scheme, using a variety of sources of information including data drawn from recent (2013 and 2015) nationwide China Health and Retirement Longitudinal Surveys (CHARLS). Our analysis involves an exploration of differences between the generosity and structure of the NRPS and other pension schemes currently in place. We also explore the feasibility of reforming the current “quasi-social pension” component of the NRPS by substituting a universal non-contributory social pension pillar. In connection with our assessment of the NRPS, we note the unusually low benefit levels for rural China.     

The Politics of Public and Private Pension Generosity in Advanced Democracies

The quantitative strand of social policy research suffers from a triple deficit: analyses of aggregate expenditure dominate, most of the few studies of replacement rates focus on unemployment or sickness benefits while pensions are excluded, and the interdependence between public and private pension plans is often ignored. This article addresses the said deficits, first, by discussing the pension sectors' theoretical peculiarities and by proposing two hypotheses: one on the role played by political parties in implementing public pension retrenchment, and the second on their role in extending private pension plans. Second, the article presents regression results of public pension replacement rate changes in 18 developed democracies. The findings show considerably smaller cuts to pensions than to unemployment or sickness benefits, and striking differences regarding partisan effects between the sectors. Lastly, the article assesses partisan effects on private pension plans, detecting some rather surprising effects. Most noteworthy is the fact that those parties which reduced public pension generosity during the 1990s (i.e. Social Democrats) cannot claim responsibility for compensating these cuts by eliciting higher private engagement.     

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 Reforms in Europe and Life-course Politics

In recent years, somewhat drastic pension reforms have taken place in all European countries. The pension systems developed in the last century are no longer considered to be suited to the changing demographic constellations in European countries, and the financial sustainability of these systems is under threat. Moreover, the changing political and economic set‐up in European countries is also used to justify reforming the different pension systems. Different reasons can be given to explain the various pension reform measures without, however, there being any integrated coherence. We suggest that a politics of social policy, and of pension policy in particular, based on a life‐course perspective, facilitates the understanding of the whole range of pension reform measures. In the past, the elaborated pension systems were attuned to a normative standard biography. A new standard biography, with different phases and more transitions and combinations, enables one to understand the variety of the ongoing pension reform measures. Such a life‐course perspective integrates sequences of learning, working and caring considered necessary for the polity. In other words, it is based on a conception of human potential, and it integrates, to some extent, the previously separate domains of labour market policy, education policy, care policy and pension policy. However, recent theoretical and empirical studies of the life course lead to a critical evaluation of the new standard biography, with the conclusion that the new standard is one‐sided and scientifically unsound, entailing challenges for social policy.     

Toward an inclusive system for informal workers? Diverging impacts of labor informality on Chinese workers’ pension enrollment

The Chinese pension reform of 2011 allowed informal workers to enroll either in the employment-based pension program or in the residency-based pension program. Despite this historic pension reform, the question of how labor informality influences one's pension participation under the reformed pension regime has been insufficiently discussed. This article fills this gap by analyzing two waves of a national-level survey—the China Labor Dynamic Survey of 2012 and 2014. This article makes the following two points. First, the impact of labor informality differs across the two pension programs. Second, local citizenship filters the negative impact of labor informality, but only for the residency-based pension program. Having “local” citizenship does not offset the negative impact of labor informality on workers’ enrollment in the employment-based pension program. These findings show how the recent reform is ironically reinforcing the existing social cleavages between different types of Chinese workers.     

Poverty Reduction: The Missing Piece of Pension Reform in Latin America

Employment‐based pension plans constitute the main form of pension provision in Latin America. Although recent pension reform in the region has focused on strengthening these, old‐age poverty remains high in most countries in the region, with older people over‐represented among the poor. The article argues that ensuring old‐age support for poor and vulnerable groups involves a different set of priorities and options for pension reform, namely a strong focus on tax‐financed public cash transfer programmes. Cash transfer programmes focused on poor older people are the missing piece of pension reform in the region. The article examines the experience of the handful of countries with such programmes in place, and draws the lessons for the future of social policy in the region.     

Developing countries and systemic pension reforms: Reflections on some emerging problems

Since 1981 close to forty countries have introduced systemic pension reforms that have replaced all or part of prior pay‐as‐you‐go (PAYG) schemes with privately managed funded defined contribution (FDC) pillars or systems. However, over the past decade about half of these countries have subsequently cutback on, or entirely eliminated, these FDC schemes. In this article we explore some of the reasons why this reversal is often taking place in developing countries. As part of our analysis we propose a new pension reform typology that goes beyond the commonly used dichotomy between PAYG and pension privatization. We identify and discuss four factors that are of particular relevance to those seeking to understand the pension policy reversals that have been taking place in many developing countries: low pension coverage and incentive incompatibility, triple burden costs, tradeoffs between pension reforms and social pensions, and difficulties with annuitization.     

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.     

Shifting the Pension Mix: Consequences for Dutch and Danish Women

All European countries are aiming to reform their pension systems in line with two conceptual ideas: firstly, that systems should combine public, occupational and private pensions; secondly, that entitlements should be individualized. The Dutch and the Danish pension systems already consist of these three different pensions with relatively individualized entitlements and in a way form an ideal type of pension system. However, these systems are far from ideal since they are deeply gender biased. The positive effects of citizenship‐based state pensions conceal the negative ones. In addition, recent developments in the combination of the pension schemes counteract the positive effects. Given the male‐oriented norm when it comes to full pension entitlements, and given the fact that life courses are still gendered, these countries’ systems and developments have negative effects for women.     

The effect of immigration in the retirement age reforms: learning from a numerical example

This article examines the role played by the low-skilled immigrant labour force in countries aiming to reform their public pension systems by postponing the pensionable age. With an overlapping-generations model in continuous time and a fully redistributive pension system, the results of this article suggest that immigration could imply a delay in the pensionable retirement age. Further, we find that the preference for a delay in retirement age increases with the labour productivity of both immigrants and native population.     

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.     

近十年我国社会保障改革的历史进程与经验总结

近十年来,我国面临的国际国内形势出现了新的变化,社会保障改革在此背景下也进行了新的道路选择并取得一系列成就。2011年开展城镇居民社会养老保险试点工作,这与2009年建立的新农保制度初步构成了我国养老保障制度的基本框架,标志着我国覆盖城乡居民社会保障体系的主要制度都建立起来,是我国社会保障改革和全面建设小康社会的重大进步。总结近十年来我国社会保障改革的基本经验,有益于我们更明确的认识改革的历史与现状,为继续推进社会保障改革、发展社会保障事业奠定重要基础。