A risky strategy: Reflections on the World Bank Report Averting the old age crisis

This article is a critical assessment of a report on pensions recently published by the World Bank. It takes issue with the report's assertion that public pension systems have failed both socially and economically, demonstrating that many of the shortcomings identified by the World Bank apply with equal or greater force to private systems. It argues that the strategy outlined in the report, involving the replacement of social insurance by mandatory savings schemes, would involve an unacceptably high degree of risk for workers and pensioners, that it would make old-age protection more costly, and that the transition would impose a heavy burden on the current generation of workers. The article concludes that a more efficient and less disruptive approach to the provision of retirement pension would be to focus efforts on measures to rectify design deficiencies and inequities in existing schemes.     

A comparative study of the relationship between pension plans and individual savings in Asian countries from an institutional point of view

Hur MH. A comparative study of the relationship between pension plans and individual savings in Asian countries from an institutional point of view Int J Soc Welfare 2010: 19: 379–389 © 2009 The Author, Journal compilation © 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare. This study identifies various saving plans used as alternative pension plans in Asian countries and examines the extent to which these saving plans contribute to their pension schemes. Data were collected from six Asian countries: China, Hong Kong, Japan, Korea, Singapore and Taiwan. The comparison concentrates on an examination of differences and similarities in individual countries' privately managed pension schemes and saving plans. This study suggests that a pension system does not have to be a privately managed plan to encourage individual savings. A critical point for individual savings was avoiding a defined benefit plan. On the basis of these findings, a typology of relationships between second and third pillars and provident funds and incentive systems for individual savings was developed.     

Second‐pillar pensions in Central and Eastern Europe: Payment constraints and exit options

During 1998–2007, a majority of Central and Eastern European (CEE) governments enacted laws obligating workers to save for retirement in privately managed individual accounts. The governments funded these accounts with a portion of public pension revenues, thus creating or increasing deficits in public systems. After the onset of the global financial and economic crisis (2008), most CEE governments reduced these funding diversions and scaled back the accounts. Now, a decade after the crisis, this article examines the benefits that the accounts are beginning to pay retiring workers. In general, these benefits are shown to be disadvantageous compared with public pensions. Some pay lump sums in lieu of regular monthly benefits, most fail to adjust pensions regularly for inflation, and some pay women less than men with equal account balances. In several countries, pensioners with individual accounts receive lower benefits than those without them. To enable retiring workers to avoid these disadvantages, several CEE governments have allowed them to refund their account balances and receive full public pensions. Yet while this strategy diffuses worker dissatisfaction, it also places strains on public pension finance. To assist second‐pillar account holders without weakening public pensions, governments should consider making private pension savings voluntary and financing these schemes independently of public pensions – i.e. by worker and employer contributions and, possibly, direct state support.     

Social Security at The Crossroads: Toward Effective Pension Reform in Latin America

Individual pension savings accounts in Latin America promised to improve compliance and raise benefits in a cost‐effective manner, while at the same time raising savings rates, which would in turn promote economic growth. A review of the evolution of pension reform in Latin America shows results to have been mixed. Analyses of the recent reforms generally fail to consider the extent to which the success or failure of pension systems is driven by exogenous factors, including macroeconomic and labour market conditions, and institutions. A number of recent studies have issued a reassessment of the region's reforms that stresses the importance of a basic guaranteed pension benefit and recognizes that a range of alternatives are viable in the region. Pension systems based on individual accounts are undergoing a thorough reevaluation.     

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.     

Voluntary Pension Saving for Old Age: Are the Objectives of Self‐responsibility and Security Compatible?

Fiscal pressure and demographic change lead governments to seek ways of reducing state expenditure on pensions. Individuals are asked to take more responsibility, and funded, supplementary pension schemes have been established in many countries. This article looks at schemes that are voluntary – the NEST or Personal Accounts scheme in Britain and the Riester Pension scheme in Germany. It examines the debate about whether it is worthwhile for some people to participate in pension schemes that are not mandatory – particularly those with low incomes and/or potentially broken careers. The small pensions they accumulate in such schemes merely offset entitlements to means‐tested pension benefits, leaving them no better off in old age. Concerns about the behavioural consequences of pension means‐testing are not new. Nonetheless, few policymakers have been willing to look at when and how such concerns were expressed in the context of voluntary pension savings. Equally, they have seldom been prepared to explain the costs involved in guaranteeing savings‐based pensions or the implications that the lack of offering such a guarantee might have for individual behaviour. The state has sought for people to take greater ‘self‐responsibility’ for their retirement income, but many people wish for some certainty with respect to the pensions they can expect. These goals might well be in conflict. Whether the ‘state pension for the 21st century’, as proposed by the UK government, will succeed in satisfying the objectives both of the state and of pension savers remains an open question.     

Social risks and public pension in South Korea

This study investigated how traditional and new social risks have emerged in South Korea and how policies have coped with them, focusing on the public pension program. Using national statistics data and publicly published government reports, factors such as marital status, economic activity, and the insurance trend of the public pension by age and gender for the last decade were examined. Main results are as follows. Women's labor force participation has slightly increased; however, career discontinuity remains and new family risks have increased. Second, women's public pension coverage as a percentage of the employment rate has substantially increased, implying that old labor market risks have largely been reduced for female workers. Third, the public pension insured rate among male workers has decreased to a small degree, which implies that new labor market risks are increasing for male workers. Consequently, the gender gap in risk has been reduced; however, policies established to deal with new risks have introduced some gender effects     

Income security for older people: An Asian perspective

In Asia and the Pacific, as in other developing regions, the continuing growth of the aged population has a great impact on social security programmes generally and, in particular, on the income security of older persons. In societies where traditional support systems are breaking up, their need for social security protection is increasingly important. A system of social security for the elderly population exists in most countries of the region. Many are provident fund schemes, which are basically saving schemes, and their coverage is low. Where social insurance pension schemes exist, the levels of benefits provided are also low. The focus for future development, therefore, lies in converting the savings schemes into multitiered pension schemes, extending their coverage and raising the level of benefits. In this context the critical question concerns the role of the State and the type of schemes used. The need for public pension schemes is great in Asia and the Pacific, where the level of poverty is comparatively high. Building pension schemes, whether public or private, involves a set of issues that need to be addressed. This article considers the systems currently in place and the challenges and limitations faced when considering the future development of social security in this area.     

Pension scheme fees and charge ratios in 44 countries: A comparative study

Based on data received from pension supervisory authorities, the article reviews 85 different pension schemes in 44 jurisdictions by looking at fees and charges as well as their legal ceilings and their development since 2014. A key finding is the observed decrease in fees and caps. The article presents jurisdictions according to clusters, i.e. by groups of countries with identical or very similar items already covered by pension fees, and analyses the extent to which various cost and fee elements are covered by fees charged to members. Finally, we calculate charge ratios for each cluster to quantify the impact of fees and charges on pension savings. Occupational defined contribution pension schemes and personal plans linked to employment tend to be much more cost effective than personal schemes that have no direct employment link.     

Notional defined-contribution schemes: Old wine in new bottles?

Until recently, most pension benefit formulae in social security schemes resembled each other. They were all defined-benefit formulae that were either generous or mean, while defined-contribution formulae were exclusively used in private and occupational pension schemes and some national provident funds. Then came the mandatory retirement savings model, introduced in Chile and subsequently in other Latin American countries. It did not seem possible that such a formula could be used on any large scale in the pay-as-you-go environment of OECD pension schemes. In the early 1990s, however, Swedish social security experts devised the notional defined-contribution (NDC) system: individual social insurance pension contribution records are converted into a fictitious savings amount at retirement, whereupon the defined-contribution approach is followed. This article analyses how much of this approach is new. The conclusion is that it is a novel pension policy instrument rather than a new type of pension formula, and most of its potential financial and distributive effects could also be achieved by a classical, linear defined-benefit formula. It is the packaging that differs and, in politics, that often is what matters.     

The 2022 Greek pension reform: The rebirth of carve-out privatization in Eastern Europe

After a decade of unprecedented austerity, Greece abruptly changed the course of pension consolidation in 2022 and implemented the controversial carve-out pension funding approach, whereby a portion of existing pay-as-you-go (PAYG) contributions are diverted to fund individual pension savings, thus undermining the financing of existing PAYG pensions. Although inspired by the World Bank’s 1994 pension privatization blueprint, the Greek 2022 reform features a major policy shift by entrusting the management of individual pension savings to a dedicated government body, ostensibly to try to remedy inherent market failures in private pension provision. Like earlier reforms in Eastern Europe, the multi-decade transition costs of carve-out funding have been vastly underestimated in Greece, which will give rise to fiscal distress in the coming years when annual transition costs become sizeable and favourable international financing terms start to change. Unless firm political commitment is established to implement the measures necessary to finance the transition costs, Greece may have to resort to reform reversals similar to those already implemented across Eastern Europe.     

Labor Mobility Without Pension Portability: Migrant Workers’ Endangered Pension Entitlement in China

This paper investigates migrant workers’ endangered pension entitlement in China from a perspective of political economy. The decentralized pension governance structure in China led to limited portability of the urban pension program. The movement of migrant workers challenges this decentralized governance structure, and have also produced clear winner and loser provinces in the pension program. This study argues that the interests of migrant‐receiving provinces, the winners, became a major obstacle in reforms that sought to address the pension portability problem. The migrant workers’ pension issue has in fact contributed to inter‐regional welfare inequality. This resulting inter‐regional inequality makes any central government's plan on centralizing the pension program a challenging task.     

Special pension schemes for workers in arduous and hazardous jobs: Functions and conditions to ensure equal treatment

Most jurisdictions grant differentiated and more beneficial treatment – usually in the form of early retirement, and commonly under special pension schemes – to workers in arduous or hazardous jobs. Several justifications for such treatment have been advanced, including i) compensating the worker for the hardship, ii) protecting the worker from the hazard, and iii) realizing the principle of equality in the distribution of costs and benefits in the social security system. This article analyses these functions from a socioeconomic perspective and explains how early retirement for workers in arduous and hazardous jobs is necessary to ensure equality by treating “unequals unequally”, and in proportion to their inequality. Moreover, this article presents a precise formula to calculate when a worker should be allowed to retire, so that workers in occupational domains with a shorter life expectancy do not systematically enjoy lower expected benefits from the pension system while having contributed the same amount. Implications for the design and desirability of special pension benefits are discussed.     

Distributional Impacts of Pension Policy in Argentina: Winners and Losers within and Across Generations

The paper deals with the life‐cycle intra‐ and intergenerational income transfers operated by the pension system in Argentina by estimating the internal rates of return obtained by different generations and types of workers from their participation in the system. The empirical analysis confirms that earlier generations of workers benefited from higher social security returns than later generations, which retired under a matured system with large deficits. The worst‐affected cohorts were those born after 1920, particularly suffering from a social security crisis and falling real wages. For future generations retiring fully under the new mixed pension system, returns will more closely depend on financial market performance and the evolution of administration costs. Intragenerational transfers were also observed for all cohorts under study, as a result of the original system design as well as adjustments adopted during the implementation process. The real distributional impact of progressive benefit formulas could, however, be offset by state transfers to cover pension deficits and forward tax shifting in a context of unequal pension coverage.     

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.     

Pension reform, the stock market, capital formation and economic growth: A critical commentary on the World Bank's proposals

Proposing far-reaching reforms to pension systems, the World Bank has recently suggested that the existing pay-as-you-go systems in many rich as well as poor countries should be replaced by fully funded, mandatory, preferably private pensions, as the main pillars of the new system. It argues that these reforms will not only benefit pensioners but also enhance savings, and promote capital formation and economic development. This paper provides a critical examination of the Bank's theses and concludes that it has adopted a one-sided view of the relationships between the key critical variables. The proposed reform may therefore neither protect the old nor achieve faster economic growth.     

An International Comparative Study on Women's Pension Rights and Their Economic Risks

This article examined the theoretical meanings of pension rights and analyzed their effects on women's economic risks in developed countries. First, based on the status of a citizen, worker, parent, and spouse, this study investigated how pension benefits are guaranteed as a citizen regardless of work history, the degree to which women's disadvantageous situations in the labor market and unpaid work are compensated by public pension as workers and parents, and how marital status is treated in the different pension systems. Second, analysis of the effect of pension rights showed that individual rights is a significant factor to prevent economic risks of elderly women. Derived rights did not seem to secure the economic welfare of elderly women, at least in a comparative context. This finding suggested that developing individual rights, rather than derived rights, is the way to guarantee long‐term elderly women's economic welfare.     

Lessons from China on different approaches to pension coverage extension

Achieving universal pension coverage is both an aspiration and a challenge for many developing economies. Traditional contributory schemes are less effective in extending pension coverage to workers who are not in the formal sectors of the economy. As an alternative, non‐contributory schemes have gained popularity in recent years. China’s pension reforms mirror this global trend. The introduction of a contribution‐based pension scheme for urban employees (Employees’ Pension) was followed by a scheme for rural and urban residents (Residents’ Pension), which is partly government financed and partly contributory, with multiple options for premium payment. This study uses nationally representative survey data collected in 2016 to compare the inclusiveness of the two schemes. It finds that access to the Residents’ Pension scheme is more equal than the Employees’ Pension. Lower status workers in terms of education, employment, income and hukou‐migration are more likely to participate in the Residents’ Pension as opposed to the Employees’ Pension, compared with higher status workers. The Chinese experience suggests that a workable solution for pension extension in low‐ and middle‐income countries is to have a scheme that is flexible, affordable and responsive to the diverse needs of the population.     

Extending pension and savings scheme coverage to the informal sector: Kenya's Mbao Pension Plan

The Mbao Pension Plan is a voluntary individual account savings plan to which all workers in Kenya may contribute without regard to income or age. It is designed to provide a programme that is suitable for the unique nature of the informal sector and to encourage a savings culture for those workers. The key innovation is that low‐income workers can easily make small contributions at relatively low cost, considering the small contributions and small account balances. Participants can conveniently make contributions anytime and anywhere using their cell phones. This savings innovation is made possible by technological innovations that have reduced the costs of cell phones and airtime, and by the entrepreneurial innovation of mobile money. The plan is provided through private‐sector businesses.