Transcript III. Prospects of mandatory pension funds

INTERNATIONAL PERSPECTIVES:
DEVELOPMENT AND PROSPECTS OF
MANDATORY FUNDED PENSION
SYSTEMS IN LATIN AMERICA AND
EASTERN EUROPE *
Guillermo Arthur E.
FIAP
April, 2003
* Presented at the Annual Conference of the World
Pension Association - “The Impact on Pension Fund of
Major Global Exchange”. Dublin, Ireland, April, 2003.
INTERNATIONAL PERSPECTIVES:
DEVELOPMENT AND PROSPECTS OF
MANDATORY FUNDED PENSION SYSTEMS
IN LATIN AMERICA AND EASTERN EUROPE
IV Conferencia Internacional de Fondos de Pensiones
Dublín, Irlanda
Abril 2003
Guillermo Arthur E., Presidente FIAP
Autor: Asociación de AFP de Chile
I. The “reformist” countries
LATIN AMERICA
COUNTRY
CHILE
PERU
ARGENTINA
COLOMBIA
URUGUAY
BOLIVIA
MEXICO
EL SALVADOR
COSTA RICA
DOMINICAN REPUBLIC
ECUADOR
NICARAGUA
Source: FIAP
(*) Not yet implemented
YEAR OF
REFORM
1981
1993
1994
1994
1996
1997
1997
1998
2000
(*)
(*)
(*)
EASTERN EUROPE
COUNTRY
YEAR OF
REFORM
HUNGARY
1997
KAZAKHSTAN
1998
POLAND
2000
BULGARIA
2002
CROATIA
2002
MACEDONIA
(*)
PENSION REFORM IN LATIN AMERICA AND
EASTERN EUROPE
(as of December 2002)
COUNTRY
AFFILIATES
(number)
PENSION FUND
(MMUS$)
POLAND
KAZAKHSTAN (1)
HUNGARY (2)
BULGARIA (2)
10,888,067
4,968,961
2,239,000
1,280,818
6,674
1,431
1,443
55
MEXICO
ARGENTINA
CHILE (3)
COLOMBIA
PERU
EL SALVADOR
BOLIVIA
URUGUAY
TOTAL
29,421,202
9,106,349
6,708,491
4,715,948
2,993,782
992,824
760,959
616,664
74,693,065
31,748
11,409
35,515
5,482
4,527
1,088
1,144
893
101,409
(1) as of june 2002
(2) as of september 2002
(3) GDP as of december 2001
Source: FIAP
PENSION
FUND/GDP
(%)
1.4%
17.2%
n.d.
0.4%
5.4%
4.8%
52.8%
7.7%
8.0%
7.8%
14.0%
7.3%
PENSION FUND IN LATIN AMERICA
MM US$
40000
35000
Accumulated FIAP: MMU$ 101.409
30000
México
25000
20000
Argentina
15000
Chile
Perú
10000
Colombia
5000
Uruguay
C. Rica
Bolivia
0
81
82
Source: FIAP
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98 99 '00 '01 '02
El Salvador
II. The impacts of pension reform
•
Although it may be too soon to make a
complete assessment of pension reform, some
remarkable results can already be observed:
1. High rates of return of pension funds investment.
2. Positive impact on capital markets development.
3. Positive impact on savings and economic growth.
4. In some countries social security debt did stop growing
after pension reform. In others, social security debt
growth rates did decrease.
4.
Lower social security debt
•
When a new funded pension system substitutes an
existing pay-as-you-go system, the growth rate of the
implicit social security debt will first decrease and
afterwards it will stop.
•
When a funded pension system partially substitutes a
pay-as-you-go system, the growth rate of the implicit
social security debt will decrease
(There are transitory negative effects on fiscal deficit flows
because:
•
Revenue of the old pensions system will decrease (as
contributors move to the new system).
•
Obligations of the old system with workers who switch to
the new system are usually recognized and paid.)
Implicit Social Security (Pension) Debt (ISSD)
and Public Debt (%GDP)
LATIN AMERICA
COUNTRY
ARGENTINA
BOLIVIA
CHILE
COLOMBIA
PERU
MEXICO
URUGUAY
EASTERN EUROPE
ISSD *
Public Debt
85%
73%
60%
56%
40%
65%
214%
53%
56%
9%
24%
43%
19%
45%
Source: Holzmann; Palacios; Zviniene (2002)
* 4% discount rate
COUNTRY
ISSD *
Public Debt
HUNGARY
POLAND
MACEDONIA
CROATIA
203%
261%
291%
201%
59%
43%
41%
33%
III. Prospects of mandatory
pension funds
1.
Challenges
•
In some reformist countries, the new pension
systems are under some criticism because of
political reasons; because the impact of pension
reform on the cash flow fiscal deficit; and
because some groups of workers which did
receive privileged pension conditions in the old
system, lost their privileges with pension
reform.
•
The weakness of the world economy has a
negative impact on pension fund returns. This
situation could strengthen opposition to pension
reform.
(Continue)
III. Prospects of mandatory
pension funds
•
In some countries pension fund
investment rules do not allow fund
managers to diversify the portfolio in the
most efficient way.
•
In many countries it’s difficult to extend
the coverage of the new funded pension
systems because the relatively large size
of the informal sector.
III. Prospects of mandatory
pension funds
1.
Opportunities
•
In most reformist countries the results of the
new mandatory pension funds are encouraging.
This should help to give momentum to the
reform impulse in other countries (Slovakia,
Czech Republic, Dominican Republic, Nicaragua,
etc.).
•
The practical experience of reformist countries
should help other countries which are
considering pension reform, to improve the
design of their own new systems.
III. Prospects of mandatory
pension funds
1.
Conclusion
•
Pension funds are playing a growing role within
social security system. This trend opens great
opportunities for the industry.
•
However the new mandatory funded pension
systems are facing a tough world economic
scenario and pension reform is been challenged
by their opponents.
•
To overcome this situation the industry must
show discipline, creativity and a strong
compromise with the principles of the new
pension system .