Pension reform: key issues illustrated with an actuarial model
Heikki Oksanen2002, European Economy-Economic Papers
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Abstract
Downloadable! The paper examines pension reforms under ageing. With stylised facts, ageing is traced to low fertility and increasing longevity. ... The paper examines pension reforms under ageing. With stylised facts, ageing is traced to low fertility and increasing longevity. ...
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Pension Reforms : key issues illustrated with an actuarial model by
2002
The paper examines pension reforms under ageing. With stylised facts, ageing is traced to low fertility and increasing longevity. Given these persistent factors, pension systems must be reformed to avoid an unfair burden being left for future generations. The main results for reform blueprints are: (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 retirement age increase is necessary to moderate the increase in pension expenditure and to preserve adequate pension levels. (4) Pension reforms have important effects on pub...
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)
Redesigning pension systems The institutional structure of pension systems should follow population developments
2014
Pension systems need to be redesigned to accommodate demographic changes. Postponing adjustment simply increases the economic and social costs. The interests of workers (deductions from wages) and retirees (receipt of benefits) differ. Governments need to make pension systems more transparent and make adjustments to reduce the burden on workers, returning the pension system to its social role, which is helping the very old without overburdening the young. Pension solidarity should not be confused with political discretion. Transparency and fairness are the key preconditions when adjusting pension systems for the 21st century. ELEVATOR PITCH
Ageing, retirement and pension reforms
The World Economy, 2003
I T is sometimes said that 'war is too serious a matter to be left to the generals', and it is tempting to paraphrase the saying by asking whether retirement is not also too important a question to be left to economists and politicians. This idea has come to me in recent months, and in response to two surprising changes in received opinion. Faced with difficult stock markets many advocates of funding and privatising pension systems have given up on their proposals-which once seemed so attractive. In the face also of a resurgence of unemployment, some newly converted supporters of raising the age of retirement have also been repossessed by old demons and once again believe-against all the evidencethat inactivity among the older generation contributes to an increase in economic activity among younger workers. These remarks are to remind that the design of a new pensions system as well as the reform of an existing system should not be influenced in their basic features by temporary shocks. Stock market fluctuations and changes in the labour market are all part of normal economic life and must therefore form an integral part of a robust and yet flexible system.
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.
Pension systems and reform conceptual framework
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The World Bank's conceptual framework to assess pension systems and reform options evaluates initial conditions and the capacity to improve the enabling environment, then focuses on how best to work within these to achieve the core objectives of pension systems--protection against the risk of poverty in old age and smoothing consumption from one's work life into retirement. The Bank applies a multi-pillared approach towards pension system modalities to address the needs of target populations including: (i) a non-contributory "zero pillar" extending some level of old-age income security to all of the elderly; (ii) an appropriately sized mandatory "first pillar" with the objective of replacing some portion of lifetime pre-retirement income through contributions linked to earnings; (iii) a funded mandatory defined-contribution "second pillar" that typically provides privately-managed individual savings accounts; (iv) a funded voluntary "third-pillar;" and (v) a non-financial "fourth pillar." The primary evaluation criteria are the ability of the system to maintain adequacy, affordability, sustainability, equity, predictability and robustness. The secondary evaluation criteria are the system's capacity to: minimize labor market distortions; contribute to savings mobilization; and contribute to financial market development. Because pension benefits are claims against future economic output, it is essential that over time pension systems contribute to growth and output to support the promised benefits. Going forward, the Bank is focusing on strengthening its support in: (a) establishing a clearer results framework to assess pension systems and reforms; (b) enhancing knowledge management, including research and learning; and (c) improving implementation capacity. JEL Classification: H55, J14, J26
Lessons from Pension Reforms
NDC schemes seemed to be an automatic (and not so obvious to the public, and thus politically easier) way of reducing pensions and inducing people to retire later. These schemes were supposed to diminish the need for involvement of policy making and social dialogue in the process - involvement that would slow the necessary decision making. The recent financial and economic crisis has clearly shown that belief in such automatic adjustment mechanisms is not very realistic. There is, and there always will be, a conflict between long-term concerns and shorter-term needs, and there has to be a compromise between the two. The same applies to long-term concerns about benefit adequacy: unless we are able to build into the system mechanisms that ensure not only financial stability but also adequacy of benefits, there will be a permanent need for discretionary interventions in the system.
Reforming pensions: Principles and policy choices - By Nicholas Barr; Peter Diamond
International Social Security Review, 2009
The economics of pensions and variable retirement schemes
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The Demographic Challenges of Pension Systems
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SNS, the Centre for Business and Policy Studies, is an independent think tank that brings together the worlds of academia, business and government for knowledge-sharing and dialogue on key societal issues. SNS provides a steady flow of independent research and analysis. The research takes a solution-focused approach to important policy issues. SNS mobilizes the best academic expertise from universities and research institutes in both Sweden and around the world. The quality, integrity and objectivity of SNS research are among our principal assets. Responsibility for the analysis and the conclusions in the research reports rest with the authors alone. Summary
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Ageing-Driven Pension Reforms
SSRN Electronic Journal, 2016
This paper stems from the observation that there are two worldwide trends, pension reform and population ageing, and asks whether the two may be related. Exploring the cases of pension reform in different countries, we find that, although they are very different, the cases share a common characteristic: they shift risks away from workers towards those who are retired. Furthermore, population ageing, by increasing the weight of the elderly relative to working generations, raises the price of intergenerational risk sharing. Combining these findings, we argue and show formally that pension reform can be seen as a welfare-best response to population ageing.
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Occasional Papers, 1996
for secretarial aid, and Yvonne Liem for help on the bibliography. David Driscoll of the External Relations Department edited the study for publication and coordinated its production. The study was originally prepared for a seminar of the Executive Board of the Fund. In the seminar, Executive Directors expressed a wide range of views with regard to the appropriate approach to pension reform and the pertinence of the analysis and recommendations presented in this study. The present version reflects comments and suggestions made by a number of Executive Directors. However, the study should be taken as expressing solely the views of the authors and not those of the Executive Directors or the Fund.
Pension System in the Changing Society
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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.
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Pension reform: Disentangling retirement and savings responses
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