Redesigning pension systems The institutional structure of pension systems should follow population developments (original) (raw)

Pension System in the Changing Society

Pénzügyi Szemle = Public Finance Quarterly

In the past three decades, several attempts in various directions have been initiated for reforming the pension system. The reforms are needed to ensure financial viability on the one hand, and to achieve greater justice, on the other hand. Parametric reforms are not enough. A paradigm shift is needed in the pension system! To that end, the insurance paradigm in the state pension system must be replaced with an investment paradigm, and, to be more specific, to the paradigm of investing into human capital. We don't save for our older selves, we repay our predecessors what they invested in us. Our work pensions would be complemented by the second channel payable based on children or based on the voluntary pension fund. The latter should be chosen by those who do not or could not have children. If they do, eventually, have children, they can change to the children-based pension channel. The proposed reform would result in greater justice at all events. It would, however, be a viable step. It could have a significant role in strengthening family solidarity, encouraging having children and the mitigation of demographic problems.

Pension Reform

OECD Development Centre Policy Briefs, 1999

In its research activities, the Development Centre aims to identify and analyse problems whose implications will be of concern in the near future to both Member and non-Member countries of the OECD. The conclusions represent a contribution to the search for policies to deal with the issues involved. The Policy Briefs deliver the research findings in a concise and accessible way. This series, with its wide, targeted and rapid distribution, is specifically intended for policy and decision makers in the fields concerned.

La réforme des pensions: principes, erreurs analytiques et orientations générales

Revue Internationale de Sécurité Sociale, 2009

This article, based on two books (Barr and Diamond 2008, forthcoming), 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.

Pension Reforms: An Illustrated Basic Analysis

CESifo Economic Studies, 2004

The paper examines pension reforms under population ageing. The concepts of "implicit pension debt", "implicit tax" and "internal rate of return" are first introduced with the help of a three-period model. Using stylised facts, ageing is traced to low fertility and increasing longevity. Formulating a benchmark for intergenerational fairness leads to a framework for designing pension reforms such that leaving an unfair burden to future generations is avoided. Secondly, a yearly simulation model is used to arrive at the following main results for reform blueprints: (1) In a Defined Benefit (DB) system, partial pre-funding is needed to achieve intergenerational fairness unless benefits are sufficiently reduced; partial privatisation is an option for the management of the accumulating funds. (2) Transition from a DB to a Notional Defined Contribution (NDC) system is another reform option; it reduces the replacement rates to levels which match prescribed contribution rates; an NDC public pillar can be accompanied by a second pillar, managed by the private sector. (3) An effective increase in the retirement age is necessary to moderate the increase in pension expenditure and to preserve adequate pension levels. (4) Pension reforms have important effects on public finance target setting. (JEL H1, H5, H6)

Pension reforms for sustainability and fairness

CESifo Forum, 2001

Alot of ink has already been spilt in the debate on the relative merits of alternative pension systems since economists (finally) discovered that choices made in this area are among the most important in public policy. Put simply: if a level of pensions, which is quite normal in ...

Adequacy and Social Security Principles in Pension Reform

1998

This paper aims at reviewing the role that internationally accepted social security principles could and should play in such major reforms with special reference to pension schemes.Four main factors and trends seem to exert a major influence on the advocated need for and the content of contemporary pension reforms. These are the aging of national populations; a growing interest for privatization, including in the social sphere; the globalization of markets, which brings labour and social costs under close scrutiny; and the growth of the so-called informal sector which leaves unprotected large sections or even the majority of the active population. Pension reforms have been designed to take account of these factors. The first section of this paper provides a typology of these reforms. The second part identifies the major guiding principles which should, at least in the opinion of the ILO, continue to be used as benchmarks for assessing the value of proposed social security reforms, w...

Pension policy design: The core issues

Discussion Paper (Institut für Gerontologie - Ökonomie und Demographischer Wandel), 2014

The last two decades have been characterised by significant changes in national pension arrangements. While at first, a consensus seemed to be evolving around a one-size-fits-all reform, more recently the trend has been towards a better customisation of reforms. This paper reviews this process, focusing on five pension policy design issues. These are how policymakers have sought to optimise poverty alleviation effectiveness; the redefinition of the state’s role in smoothing incomes over the life-course; the balancing of contributions to benefits; adjusting the system to be more responsive to demographic, economic and social changes; and ensuring that reforms will be long-lasting. While the role of state pensions still appears to be on a diminishing path, there has been a growing realisation of the need to ensure that they remain adequate. This has led to the setting up of innovative minimum pension schemes and credits for periods of childcare and unemployment. The expanding role of private pensions has also led governments to intervene more in their operation. Policymakers have shown strong interest in automatic adjustment mechanisms, to try to bring about required economic changes. However there is greater understanding that for the latter to happen, the state has to engage more with its citizens. While changes in pension systems can help societies respond to the ageing transition, for instance by removing incentives to retire too early or by aligning better the generosity of benefits to contributions made, there will need to be a much broader policy response.

Introduction: The challenge of pension reform and gender equality in aging societies

Gender Issues, 2005

en the first state-sponsored social security pension scheme was introduced Germany by Otto yon Bismark in 1889, the average life expectancy was about twenty years less than the age at which German workers' were slated to receive their retirement benefits. This assured the system would be solvent. Since then, life expectancy has climbed to seventy-six years in the industrialized countries of the Organization for Economic Cooperation and Development (OECD). Not only are people living longer but these societies are getting older. Between 1960 and 2040, the proportion of people over age sixty-five is expected to more than double from an average of 9.7 percent to 22.2 percent of the populations of most OECD countries. One half of those elderly people will be over seventy-five years of age. Aging populations are creating tremendous pressures on social security schemes throughout the advanced industrialized countries as looming deficits threaten to dilute the benefits of future retirees. Responding to this challenge, policy-makers tend to concentrate on designing reforms that will cover the projected shortfalls and ensure the fiscal integrity of the pension systems. The fiscal challenge is serious, but not critical. There are basically five ways to restore the fiscal balance of conventional pay-as-you-go social security systems. Governments can raise payroll taxes, reduce benefits, create incentives to increase productivity, alter the age distribution through pro-natalist and pro-immigration policies and borrow in the lean years against the prospects of better times to come. Among these alternatives, increasing taxes and reducing benefits are the most reliable and easiest to craft. Also they can be introduced in shadowy increments through measures such as: changing the index for raising future benefits, using income tests