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.     

The mandatory private pension pillar in Hungary: An obituary

In 1998, the left‐of‐centre government of Hungary carved out a second‐pillar mandatory private pension scheme from the original mono‐pillar public system. Participation in the two‐pillar system was optional for those who were already working, but mandatory for new entrants to the workforce. About 50 per cent of the workforce joined the second pillar voluntarily and another 25 per cent were mandated to do so by law between 1999 and 2010. The second pillar has not improved the financial stability of the social security system. Moreover, the international financial and economic crisis has highlighted the transition costs that are associated with moving, even if only partially, to a system of pre‐funding. In 2010, the conservative government de facto “nationalized” the second pillar, and it is to use part of the accumulated pension capital to reduce Hungary's excessive public debt and annual budget deficit and to compensate for income tax reductions.     

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.     

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.     

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.     

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.     

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.     

Micro‐pensions in India: Issues and challenges

This article aims to fill a gap in the social security literature on India by examining the role of micro‐pensions. The analysis suggests that because of the heterogeneity of the target population, micro‐pension products — with microfinance institutions (MFIs) as the main, but not only sponsors — should be voluntary and portable and permit experimentation in their design and in the delivery of services. Accordingly, decentralized micro‐pension schemes that operate within an appropriate regulatory framework and according to sound governance practices are deemed more fitting for the Indian context than centralized schemes with limited flexibility. The article discusses two case studies of recently‐initiated micro‐pension schemes in India, which reveal the need for rigorous analytical research on the micro‐pension sector, particularly concerning the structuring of pay‐out options and innovative delivery mechanisms. The article concludes that micro‐pensions have the potential to be one of the most useful components in India's multi‐tiered social security system, and should be encouraged.     

Exploring a blind spot in comparative pension reform research: Long‐term trends in non‐contributory pensions in Europe

Over the past two decades, pension reforms have been high on the agenda of social policy makers in Europe. In many countries, these reforms have resulted in less generous public pensions. At the same time, minimum income protection for older adults has received attention from policy makers, but much less so from social policy researchers. Therefore, this study explored how benefit levels of non‐contributory minimum income schemes for older adults evolved from 1992 to 2012 in 13 ‘old’ EU member states. Building on two cross‐national longitudinal datasets with comparative data on minimum income protection in Europe, the study shows that over the past 20 years, the erosion of the principal safety net of last resort for older persons has been limited. Moreover, a substantial number of European countries have pursued a deliberate policy of considerably increasing minimum income benefits.     

Social pensions and policy learning: The case of southern Africa

In the last decade and particularly since the publication of the Millennium Development Goals, social pensions have captured the interest of those concerned with the well-being of older people across that large part of the world where formal, contributions-financed, old-age benefit systems cover only a minority of the population. International organizations have turned their attention to such schemes and some see them as having a valuable role to play. However, information about what they are and how they work, and about their efficacy in meeting the objectives set for them, is still limited. Learning has been taking place not only in the international organizations but also in the region where they are most prominent – southern Africa. Such learning should be encouraged and the International Social Security Association has a part to play in this learning process.     

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.     

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.     

Analysing the Welfare State in Poland, the Czech Republic, Hungary and Slovenia: An Ideal-Typical Perspective

This article applies ideal-typical welfare state theory in analysing the recent transition and the current position of welfare state systems in Eastern Central Europe, taking the cases of Poland, the Czech Republic, Hungary and Slovenia. The article argues that Eastern Central European welfare state systems have returned to their historical and cultural roots of welfare state formation and development, to the time before the onset of state socialism in Soviet times. First, social security policies and social and labour laws were established when the vast bulk of Eastern Central European countries were member states of the Austro-Hungarian Empire, sharing the same political economy, legal system and culture. Over the last 20 years, the socialist system of employment-based social services and benefits has been replaced with Bismarckian-type social security policy and systems. While there are major alterations here and there – in ideal-typical perspective – the four countries under scrutiny share all the major traits of Continental European (Christian Democratic) welfare regimes .     

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.     

Pension system generosity and reform in Algeria, Morocco and Tunisia

Pension systems in the North African countries of Algeria, Morocco and Tunisia are facing a certain number of difficulties. Presenting the characteristics and organizational structure of each, this article identifies the specificities of, as well as the common problems confronting, these countries' pension systems. With reference to authorizing legislation and case simulations, the high level of generosity of the different pension systems is discussed and an analysis presented. In a context of population ageing, it is argued that current levels of generosity cannot be maintained; reform is needed. The article discusses different reform options, the challenges of implementation and the possible macroeconomic impacts of reform.     

Pan‐European pension funds: Current situation and future prospects

The competitive pressures arising from European economic integration increasingly challenge the territorial sovereignty of national welfare states. This generates the need to situate domestic social security schemes amid the European Union's national and supranational as well as economic and social spaces. At the trans‐national level, the European Commission's 2003 Institutions for Occupational Retirement Provision (IORP) Directive created the illusion that a single market for occupational pensions would shortly be within reach. This did not happen, however, as IORPs — being at one and the same time financial vehicles and social insurance institutions — embody the constitutional asymmetry between policies promoting market efficiency and policies promoting social protection. Whereas the elimination of financial and tax barriers has proceeded smoothly, harmonization of the social and labour components within the occupational pension domain did not occur, slowing down the development of pan‐European pension plans. Nonetheless the road towards a single occupational pension market is still open, with first positive results emerging from the greater involvement of corporate and supranational actors.     

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.     

China’s development of a multi‐tier pension system

China has made a number of major changes to its pension system in the period 2014–2020, and is in the process of establishing a multi‐tier old‐age pension system, consisting of programmes provided by the government, voluntary programmes provided by enterprises, and voluntary programmes established by individuals. Policy objectives are to reduce the fragmentation in its pension system; deal with population ageing; and diversify risks by involving the government, enterprises as well as individuals. This article shows that while China has a complex system for urban workers, the coverage provided by its multi‐tier system is uneven, with the second and third tiers being in the early stages of development.     

The Revenge of History – The Institutional Roots of Post‐Communist Family Policy in the Czech Republic,Hungary and Poland

The authors combine historical and sociological institutional analysis to show that despite the political and socio‐economic transformation in 1990s, the institutional development during and before the communist era provides the best explanation for current childcare policies in Central Europe. While most authors have concentrated on policy changes that have taken place in the region since 1989, this article concentrates on the historical roots of these policies and shows that today's policies are highly influenced by a certain dynamics that had already emerged under communist rule. It shows that a historical institutional approach, which analyses the ‘gendered logic of appropriateness’ and policy legacies at various critical junctures, can explain why family policies in Central Europe had already begun to differ during the communist era, why these main differences continue and why even the changes that have taken place follow logically from historical‐institutional developments.     

The performance of social security contributory and tax‐financed pensions in Central America,and the effects of the global crisis

Over the last 30 years, Latin America has pioneered structural pension reforms. This article focuses on a representative regional sample of seven Central American countries with diverse levels of development (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) studying contributory and tax‐financed pensions as well as recent pension reforms. It comparatively assesses system performance regarding five social security principles: unity; universal coverage; adequacy of benefits; equal treatment, solidarity and gender equality; and financial sustainability. It also evaluates the impact of the world crisis on these pension systems, highlighting the differences between public and private pensions, and extracts lessons and suggests policies for the future.