Curbing the demographic “drifting dune” in long-term care insurance financing: The case of Germany

Long-term care provision and financing are becoming increasingly important matters in all ageing economies. Therefore, a major challenge for policy makers is to strike a balance between adequate care and sustainable financing. In this study, we evaluate the proposal of a so-called sustainability factor in German long-term care insurance. Considering changes in the beneficiary-contributor ratio, it aims for a rule-based consideration of demographic dynamics to alleviate pressure on long-term care financing. Using the framework of generational accounting, we demonstrate that this proposal could have a relieving effect on finances, depending on the share of involvement of current and future generations. It may offer an option for pay-as-you-go long-term care insurance systems worldwide that need to curb the impact of ageing societies. Therefore, this article addresses policy makers tasked with designing a sustainable financing model for long-term care insurance. It demonstrates that the sustainability factor represents a step towards sustainable finances and, thus, it might be one component of a more comprehensive reform package.     

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.     

Financing retirement pensions: Pay-as-you-go and funded systems in the European Union

The techniques used to finance retirement pensions in the European Union are extremely varied, as are schemes'institutional frameworks. The standard distinction between pay-as-you-go and funded systems obscures the fact that there are four main types of schemes, each with very distinct methods of regulation and conditions of long-term viability. An analysis of the current procedures reveals the extent to which the schemes'ways of operating differ, and points to considerable variations in the way the social actors participate in the process of regulation. The adaptation of pension systems to new realities is dependent on factors which go far beyond a simple choice between two basic methods of financing.     

Changing the Financing of the Lithuanian Pensions System

After the first pension reform in Lithuania, in 1995, the reforming process must continue. Important changes are needed, based on principles of old age security financing. A three-tier system has been drafted and approved by the government as a Concept of the reform. The main change proposed as a first tier is the introduction of a national pension based on the residence principle, instead of the existing basic pension based on the insurance principle. It is expected that in this way the problem will be solved of providing protection against poverty for the increasing number of people who do not have the necessary insurance record. The second tier should be a compulsory funded system based on privately managed pension funds. Several important goals would thus be achieved: diversifying the old age security risk between pay-as-you-go and funded schemes; boosting investment opportunities and encouraging financial markets to develop; offering improved incentives for the working population to contribute; and so on. The main obstacle to the introduction of the second tier is the high transition cost. The third tier would comprise voluntary pension funds: their activities should be liberated and the severe constraints on investment return removed.     

Should Public Pensions be Funded?

This paper outlines some of the arguments for and against the funding of public pensions, with a view to establishing whether there is an economic basis for judging it to be superior to pay-as-you-go (PAYG). It is concluded that if funding has an edge over PAYG, it is not an overwhelming one. While funding may have a modest cost advantage over PAYG and have superior characteristics from the standpoint of intergenerational redistribution, its alleged superiority in handling demographic and economic risk, as well as in signalling future pension costs, is difficult to justify. While theoretical arguments tend to be consistent with the view that funding will be associated with higher saving than PAYG, convincing empirical support is missing. Nevertheless, the momentum for shifting from PAYG to funding remains. But if there is to be such a shift, there may also be a case for shifting from public to private pension provision.     

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.     

Complementary retirement pensions: Towards a definition of terms

One of the main difficulties in carrying out an international comparison of retirement systems is the task of establishing clear common terminology. Like other social institutions, welfare systems differ from country to country; confusion can arise when a given word is applied to different institutional structures because such usage can mask important differences. On the basis of a comparison of complementary pension plans in the United States, Ireland, the United Kingdom, France and Germany, this paper discusses and clarifies the meanings of some key terms. The distinction between "private" and "public" retirement plans, commonly used by Americans, can be erroneously applied to other systems, particularly that of France, where complementary retirement plans resemble American "private" plans in some respects and "public" plans in others. The terms "occupational" and "supplementary", often used in Europe, can be used interchangeably; however, each one stresses different aspects of complementary plans. The terms "funding" and "pay-as-you-go" and their equivalents in French (répartition and capitalisation) have somewhat different meanings and quite different connotations. Finally, the author discusses the concept of "social insurance", as applied to both social security and complementary pension plans, to end with some reflections on the definition of what constitutes a retirement plan.     

Projected spending on pensions in Spain: A viability analysis

The viability of pay-as-you-go retirement pension schemes, such as that of Spain, remains a subject of ongoing debate. In this article we shall attempt to demonstrate that demography is the key variable that determines a system's viability. Analysis of several predictive studies conducted in the country shows that many of their predictions have been erroneous and their findings overpessimistic. This is because their forecasts were based on projections for the resident population, and overlooked the magnitude of the recent phenomenon of immigration. If the current influx of migrants continues, the problem of viability can be resolved.     

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.     

The Impact of Neo-liberalism on South Korea's Public Pension: A Political Economy of Pension Reform

This article examines the recent Korean pension reforms from a political economy perspective. It argues that these reforms are of particular interest because, unlike major pay-as-you-go pension schemes in Europe, the Korean pension scheme is a funded one and, therefore, is subject to market exposure. Also in contrast to the problems that public pension reforms have encountered in European and other OECD countries, especially 'blame avoidance', the more radical Korean reforms were implemented without significant challenge or resistance. First of all, the National Pension Scheme is described prior to the 1997 Asian economic crisis. Then the impact of this crisis on the Korean welfare state and, especially, its pension system are analysed. The main part of the article consists of a political economy of the pension reform process, in which the key roles of the international governmental organizations and the domestic neo-liberal policy elite are pinpointed. This neo-liberal ideology was critical in developing and sustaining an influential discourse on the 'crisis' in Korea's national pension fund. The article concludes by arguing, against the neo-liberal tide, for the inclusion of a pay-as-you-go element in the national pension in order to tackle escalating poverty in old age.     

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.     

Can complementary pension plans help improve retirement income in the Dominican Republic?

In the 1990s, following the earlier example of Chile, pension system reforms were implemented in a number of Latin American and other countries. These reforms focused on introducing models of pension provision that were fully‐funded and privately managed. Although aspects of these reforms have been positive, for many persons covered by these systems retirement income is not adequate. The development of occupational pension plans may offer an alternative, complementary mechanism to help improve pension adequacy. This article discusses different complementary pension plan models and examines the case of the Dominican Republic. It argues that complementary occupational pension plans may be a viable policy option for this developing country.     

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.     

The World Bank Approach to Pension Reform

This paper highlights the World Bank's thinking and worldwide involvement in pension reform. Both are driven by the Bank's mandate to help countries develop economically and to reduce poverty. The Bank has four key concerns in working with clients on pension policy: (1) short-term financing and long-term financial viability; (2) effects on economic growth; (3) adequacy and other distributive issues; and (4) political risk and sustainability. In response to these concerns and after review of the three main reform options for unfunded systems - mere PAYG reform, a rapid and complete shift to a mandatory funded system, and a gradual shift to a multipillar scheme - the Bank clearly favours the multipillar approach but in a pragmatic and country-specific manner. When helping to implement a pension reform the Bank fully takes account of country preferences and circumstances, bases its support on sound reform criteria, links the client assistance with knowledge management, provides training and other measures to enhance the reform capacity of a country, and seeks cooperation with other international institutions. In addition, the Bank has a comprehensive research agenda to improve the working of multipillar schemes, and the investigations include issues of coverage, administrative costs and annuities.     

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.     

发达国家人口老龄化及相关政策研究

发达国家最先进入老龄化社会,劳动力资源短缺、养老保障支出增大及养老服务需求增加是这些国家必须要面对和解决的问题。发达国家通过劳动力自由流动并推行弹性退休政策,以缓解劳动力资源短缺状况;通过实施养老金制度的系列改革,应付不断上涨的养老金支付问题;通过提供多种养老方式及养老服务选择并建立老年长期护理保险制度,以解决养老问题。发达国家老龄化方面的相关政策,为我国应对不断加剧的老龄化提供了很好的借鉴和启示。     

Pensions in the European Union: Adapting to Economic and Social Changes

Throughout the European Union, pension schemes are undergoing a process of adaptation to a completely different context. Some of the main stumbling blocks to this process are the great number of issues involved and the diversity of questions that these raise: demographic changes, the labour market, economic growth, social justice, the ways of regulating the established provisions and decision-making in their regard. These dimensions do not offer ready-made answers, from the standpoint of pension financing. Apart from the complexity of the situation, however, a fundamental component of European societies is definitely at stake here: the ability to guarantee a decent level of security to all citizens when they reach retirement age.     

Pension Provision for Specific Risk Groups: The Japanese Case

The growing variety of possibilities in one life course raises coverage, fairness and social adequacy questions about existing public pension provision. This paper examines problems of drop-out, full-time housewives, carers, divorced or remarried people and those engaged in atypical work in Japan. A possible solution will be a universal basic pension financed by a consumption-based tax. It is also advisable to expand social security coverage of the earnings-related pension to any earners irrespective of their earnings amount, if any. In implementing this provision, an integrated single social security pension number for each person is required, and this has already been introduced in Japan. The 1999 government reform plan for pensions is also mentioned.     

FINLAND

The durability of all institutions during this last decade of the twentieth century has been tested by the economic recession. Repercussions have hit the Finnish pension system from two directions - problems in financing, and the need to cut costs in the public sector. However, in the long run, the question of securing pensions is a matter of will. In recent years, some major amendments to laws have been made successfully, including a higher age limit for early retirement, lower levels of disability and early retirement pensions and diminished index adjustments of old-age pensions. These amendments give even more reason to believe that the main contributors to the pension system have the capacity and the will to secure the Finnish employment pension system.