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.     

The ABCs of nonfinancial defined contribution (NDC) schemes

Nonfinancial defined contribution (NDC) pension schemes have been successfully implemented since the mid‐1990s in a number of European countries such as Italy, Latvia, Norway, Poland and Sweden. The NDC approach features the lifelong contribution–benefit link of a financial defined contribution (FDC) personal account scheme, but is based on the pay‐as‐you‐go (PAYG) format. At its start out, the PAYG commitments of the preceding defined benefit (DB) system are converted into individual personal accounts, allowing for a smooth transition from the DB to the DC format, while avoiding the very high transition costs inherent in a move from a traditional PAYG DB scheme to a fully funded FDC scheme. The NDC approach implemented by the rule book is able to manage the economic and demographic risks inherent to a pension scheme and, by design, creates financial sustainability. As in any pension scheme, the linchpin between financial stability and adequacy is the retirement age; in the NDC approach the individual retirement age above the minimum age is by design self‐selected and by incentives should increase the effective retirement age in line with population ageing. As a systemic reform approach NDC has become a strong competitor to piecemeal parametric reforms of traditional nonfinancial DB (NDB) schemes. While frequent, these reforms are far from transparent and usually too timid and too late to create financial sustainability while providing adequate pensions for the average contributor. This article offers a largely non‐technical introduction to NDC schemes, their basic elements and advantages over NDB schemes, the key technical frontiers of the approach, and the experiences of NDC countries.     

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 concept of a child within sub‐Saharan African migrant homes: Reconciling culture and child rights

As international migration increases, the Australian socio‐cultural and political context in which sub‐Saharan African migrant families are settling is causing tension between traditional sub‐Saharan African migrant definitions of child and childhood experiences and host nation definitions particularly when compared with the child protection system. This paper seeks to explore and highlight the fundamental values and differences that determine perceptions and treatment of children within traditional sub‐Saharan African communities. Using a qualitative design, this study was influenced by acculturation theory. Four major themes emerged from the analysis: (a) culture and the sub‐Saharan African child, (b) moulding good children, (c) family functioning and relationships, and (d) host context: perceptions of Australian mainstream parenting. The study found that in order to successfully make decisions that are in the best interest of sub‐Saharan African migrant children that come to the attention of the child protection system, discussions about children rights can only yield good outcomes when the child's socio‐cultural environment is considered.     

The effects on intra‐generational inequality of introducing a funded pension scheme: A microsimulation analysis for Estonia

This article uses a single male cohort microsimulation model to analyse the intra‐generational and distributional effects of a shift in Estonia from a defined benefit pay‐as‐you‐go (PAYG) pension system to a multi‐pillared system with a PAYG scheme with contribution‐based insurance components and a funded pension scheme. We contribute to the literature on microsimulation by showing how introducing contribution‐based insurance components and compulsory defined contribution (DC) schemes can increase pension inequality. Our results show that in the case of a high level of inequality in labour earnings and high long‐term unemployment rates, such as in Estonia, the introduction of a very strong link between contributions and future benefits leads to considerably higher inequality in pension incomes as measured by the Gini coefficient. Simulation results for Estonia suggest that inequality in old‐age pension incomes more than doubles when the reforms mature. In contrast, the inequality in replacement rates decreases.     

Rolling Back the African State: Implications for Social Development in Ghana

The New Policy Agenda of the Reagan and Thatcher years has profoundly influenced aid flows from the industrialized countries of North America and Western Europe to the developing nations of sub‐Saharan Africa. The application of neo‐liberal principles to the disbursement of multilateral and bilateral aid for social development has resulted in the diversion of donor funding away from the public sector towards non‐governmental organizations. The consequences of relegating the role of the public sector in social development is explored through qualitative research conducted in Ghana with state‐employed community development workers. The study exposes how severe financial constraint within the state sector distorts the targeting of beneficiaries and social development activity. This differs from findings revealed by interviews with social development workers employed by international non‐governmental organizations. These indicate that such agencies are able to sustain effectively resourced fieldworkers who are in a position to form positive working relationships with beneficiaries. The circumstances of the Department of Community Development and its relationships with non‐governmental agencies in Ghana are used to explore the effects on state‐building of the New Policy Agenda in the sub‐Saharan region.     

Employer‐sponsored programmes for the prevention and treatment of HIV/AIDS: Recent experience from sub‐Saharan Africa

This article examines a sample of employer programmes in sub‐Saharan Africa that supplement government efforts to prevent and treat human immunodeficiency virus (HIV). Some of these programmes provide workers with in‐house education, voluntary HIV testing and antiretroviral treatment. Others rely on new forms of employment‐based group health insurance that include an HIV treatment package. In addition, some enterprises use the workplace as a platform for launching efforts into neighbouring communities to reach spouses, children, sex workers, secondary school students and others. Early evidence suggests that employer programmes maintain the health of large fractions of workers living with HIV who are served by them. They further enable enterprises to avoid productivity losses and turnover costs associated with HIV. At the same time, they take pressure off government agencies that face demands for treatment far exceeding their capacity. The article identifies features of successful employer programmes including “elite appeal”, which mobilizes community leaders and role models to deconstruct stigma, change perceptions and call for behavioural change; and “collateral linkage”, which extends the reach of HIV workplace programmes by linking them to related community concerns: e.g. alcohol abuse, malaria and domestic violence. Looking forward, the potential for expanding employer programmes as well as the restrictions associated with the limited scale of formal‐sector employment within sub‐Saharan African economies is assessed. Actions by which governments, employer associations, trade unions and international organizations can encourage further development of such programmes and extend their reach are suggested.     

Protecting children from nutritional and medical neglect in sub‐Saharan Africa: A five‐country study

This study critically considers the applicability of conceptions of child neglect that have been theorised by British and American scholars and promulgated in African countries through the domestication of the Convention on the Rights of the Child. The child protection legislation of five sub‐Saharan nations was compared in order to examine the presumptions embedded in their provisions concerning child neglect. These were then appraised in relation to the socio‐economic conditions pertaining in each country. Food insecurity, over‐reliance on staples and high infection rates among children in conjunction with hard to access health care and poor quality services contest the validity and relevance of dominant Anglo‐centric definitions of child neglect and methods for detecting it. The study concluded that greater congruence between national child protection legislation and the socio‐economic challenges faced by families in sub‐Saharan countries would better protect children against neglect. Key Practitioner Message: ● Child neglect is an ethnocentric concept that requires interrogation to test its relevance before applying it to developing country contexts. ● In sub‐Saharan countries, conditions of absolute poverty and grossly inadequate public services profoundly affect the ability of parents or guardians to meet their children's basic needs. ● Laws that frame child protection systems need to recognise the inter‐relationship between public services, poverty and parental care in the neglect of children.     

Assessing the pension reform potential of a notional defined contribution pillar

Abstract As some of the limitations of the traditional pay‐as‐you‐go defined benefit public pension model have become more evident in recent years, pension experts have begun searching for alternative models. The notional defined contribution model, also financed on a pay‐as‐you‐go basis, has emerged as one of the major new approaches. Drawing on evidence from schemes in six countries (Sweden, Italy, Poland, Latvia, Kyrgystan and Mongolia), this article aims to describe the notional defined contribution model and to review its strengths and limitations relative to the major alternatives, the pay‐as‐you‐go defined benefit model and the funded defined contribution model. A four‐pillar pension model is proposed.     

Three Routes to Pension Reform: Politics and Institutions in Reforming Pensions in Denmark,Finland and Sweden

By analysing pension reforms in three Nordic countries – Denmark, Finland and Sweden – that apply different institutional solutions in their old‐age security programmes, this article argues that the political processes that shaped the country‐specific pension set‐ups in the 1950s and 1960s had important ramifications for subsequent reform possibilities. A high degree of inertia exists not only in the institutions themselves but also in the political reform options and the ways in which pensions were reformed. The analysis shows that the ‘new politics’ was not new in any of the three countries. Furthermore, given the differences in the three cases, the analysis questions the nature of pension reform. The Swedish reform in the late 1990s was a ‘big bang’ that eliminated the old and changed everything; the Finns built on piecemeal reforms of conversion that gradually changed the whole system; and, while the Danish story appears to be one of stability and status quo, the drift of Danish policy ultimately changed the basic characteristics of the system. Although all three countries have more or less thoroughly reformed their pensions, the reform processes have differed according to both historical legacies and institutional frameworks.     

Mapping social work education in the West Africa region: Movements toward indigenization in 12 countries’ training programs

This article presents the results of a systematic mapping of social work training programs in countries throughout West Africa, a region historically under‐represented in global discussions of the social welfare workforce. The research illuminates how social workers and related professionals are trained to engage in social work practice in a number of West African countries. The research was conducted in two phases. In the initial phase, the research team collected documents from 12 West African countries and conducted phone interviews with relevant individuals. The second phase included field research in five West African countries ? Burkina Faso, Côte d’Ivoire, Ghana, Nigeria, and Senegal ? where the research team conducted semi‐structured interviews and group discussions with 253 individuals. Framed by indigenization theory, this study describes social service training institutes in West Africa and highlights the varying degrees to which programs have been adapted to indigenous and endogenous realities in the postcolonial era.     

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.     

Promoting a higher retirement age: A prospect‐theoretical approach

Demographic ageing and the necessity of raising the retirement age is one of the most frequently debated topics among European welfare policy experts. This study used prospect theory as developed in behavioural economics to explain public attitudes towards pension reforms. It argues that, in line with prospect theory, negative incentives are more useful in changing people's attitudes in favour of a higher statutory retirement age than are positive incentives. Therefore, in the case of increasing life expectancy, defined‐contribution schemes that apply actuarial formulae linking the level of starting monthly pension benefits to life expectancy are more useful in promoting a higher retirement age than conventional defined‐benefit schemes, which typically do not forge an automatic connection between longevity and starting pensions. The implications of prospect theory for attitudes towards pension reforms were tested using Eurobarometer survey data collected in 2004 and 2009 in the Czech Republic, Poland and Slovakia.     

The Political Economy of Privatization in Sub‐Saharan Africa*

Objective. Few studies have examined the determinants of privatization in Sub‐Saharan Africa. This study examined the macroeconomic, political, and institutional factors that drive the privatization process in Sub‐Saharan Africa. Method. We used pooled ordinary least squares regression estimation technique to analyze the determinants of privatization in 22 Sub‐Saharan African countries over a period of 12 years (1991–2002). Results. We found that inflation, income inequality, and the institutional or governance infrastructure are key determinants of privatization in Sub‐Saharan Africa. On the other hand, we did not find democracy and debt to be significantly correlated with privatization. However, countries with high debt levels that were also experiencing high inflation were more likely to privatize. Conclusion. Government leadership and, consequently, politics play a significant role in the privatization decision in Sub‐Saharan African countries.     

Extending access to contributory pensions: The case of Uruguay

Since the 1980s, many Latin American countries have tightened access to contributory pensions, with financial sustainability being a main concern. Studies suggest that a sizable share of contributors would not be able to comply with stricter access conditions, since observed contribution densities were low. While most Latin American countries lack complete work history records, the observed density of contributions offered strong evidence of short contribution histories, in particular for low‐income workers and women. In the last decade these facts drove a new wave of reforms, in the form of less demanding eligibility requirements to access pensions and the need for a gender perspective. Uruguay took part in both processes, increasing vesting period conditions in 1996, then lowering them and granting childcare credits in 2008. In this article, we analyse the effects that less strict eligibility requirements would have on pension entitlements in Uruguay, estimating complete contribution histories using administrative records. Work history records have been kept since April 1996 only, meaning there are still no complete work histories. The study finds that pension rights would increase, in particular for women. The main effect would be driven by the lower contribution requirement. In addition, childcare credits would further reduce the gender gap in terms of access to benefits. The case of Uruguay is relevant in the regional context, as most Latin American countries are ageing rapidly and can learn from the Uruguayan experience, a country with vital statistics closer to those of developed countries. Also, recent reforms in the region show shared concerns on pension rights and the gender gap.     

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.     

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.     

Social protection as a mechanism for family protection in sub‐Saharan Africa1

Mokomane Z. Social protection as a mechanism for family protection in sub‐Saharan Africa In sub‐Saharan Africa (SSA), the extended family has for generations been the basis for the sustenance of society, offering material, social, emotional and care‐giving support for its members in times of need and crisis. Over the years, however, this institution has been affected by demographic and socio‐economic transformations that have continued to take place in the region. This article illustrates how these changes have contributed to family circumstances that are characterised by economic fragility, debilitating poverty and weakened family support for household chores and care‐giving responsibilities. The article argues that the development and provision of more comprehensive social protection policies and programmes in SSA can help mitigate the impact of the changes on families and their members.     

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.