Transcript The Political Economy of Pension Reform in Transformation

Pension Trends
Elaine Fultz, Director
ILO Subregional Office for Eastern
Europe and Central Asia
1 September 2008
Political Economy of Pension
Reform
•
•
•
•
Early shocks of transformation
Financial imbalance in national pension scheme
Flattening and lowering of pension benefits
Shift of power for pension policy making from
Labour/Welfare Ministry to Finance Ministry
• Neoliberal economist links with World Bank
• Pension privatization
Political economy (continued)
• Circumvention of normal channels for
pension policy making
– Weak reform deliberations
• Unsettled design features
– Undefined benefit package
– Unfunded “transitional financing costs”
– Inadequate regulation of private savings funds
Poland - “Hole” in pension
finance due to privatization
2.5%
2.0%
%
1.5%
GDP
1.0%
0.5%
0.0%
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
year
privatisation revenues
credit
public pillar savings
Chlon, Agnieszka, "The Polish Pension Reform of 1999," in Fultz, E., Ed., Pension Reform in
Central and Eastern Europe, Vol. 1, ILO: Budapest, 2002.
2050
Retirement ages in EU member states, 2007
Current law
Men
Women
Bulgaria
2000
63
59, increasing to 60 in 2009 by 6
months per year
Czech Republic
1995
63
63 with no children;
59-62 with children, depending on #
Estonia
1998, in force
2000
63
60, increasing to 63 in 2016 by 6
months every second year
Hungary
1996
62
61, increasing to 62 in 2009 by 1 year
every second year
Latvia
1996
62
61.5 (from 1 July 2007), increasing to
62 in 2008 by 6 months per year
Lithuania
1994, 2000
62.5
60
Poland
1998
(in force, 1999)
65
60
Romania
2000 (in force
April 2001)
63 (in the first
quarter of 2007),
increasing to 65 in
2014 by 3 mos/year
58 (in the first quarter of 2007),
increasing to 60 in 2014 by 3 months
per year
Slovak Republic
2003 (in force
Jan. 2004)
62
60 with no children, increasing to 62
in 2009;women with children will
reach 62 by 2010-2014, depending on
the no. of children
Slovenia
1999
62, increasing to 63
in 2009
55 and 8 months increasing to 61 in
2023*
Hungary – Private investment
returns(end of 2005)
• 6.8% average annual return
• 6.1% average inflation
• 0.7% positive return to workers
EU member states –
privatization scorecard
Countries with mandatory, privately
managed individual savings accounts
Countries without such schemes
Hungary (1998)
Czech Republic
Poland (1999)
Lithuania (1)
Latvia (2001)
Slovenia
Estonia (2002)
Bulgaria (2002)
Slovak Republic (2005)
Romania (2008)
(1) The second tier is voluntary for all workers, both current and future, but is financed by a diversion of contributions from
the public pension system for each worker who joins.
Other followers of privatization
policy prescription
•
•
•
•
•
•
•
Croatia
Kazakhstan
Kosovo
Macedonia
Armenia
Kyrgyzstan
Turkmenistan
Where do we stand ?
• Benefit package still undefined
• Retirement from mixed systems starting
soon
• Damage control
– Limit private administrative charges
– Confront transition costs
– Define “equity” for those who made
disadvantageous choice
Where do we stand – neglected
issues
•
•
•
•
Collection of contributions
Pension scheme governance
Aging and pension finance
Gender equality
Improving the collection of pension
contributions
•
•
•
•
•
•
•
Insist that govts lead by example
Redefine non-compliance as social issue
Invest in enforcement
Piggyback on existing procedures
Reduce the compliance burden
Radical changes can be destabilizing
Tackle shadow economy step by step
Employment rates, 2005
Lisbon Strategy target: 70% (15-64) and 50% (5564) by 2010
Note:
Source:
Figures of Bulgaria, Croatia and Romania are not included in the calculation of the EU averages,
since Croatia is still in the accession process and Bulgaria and Romania joined the EU in 2007.
EUROSTAT, 2005 employment tables.
Average pension for a woman (as a percentage of the
average pension for a man), Poland, simulation for 2050
With continuing early
retirement for women (60,
65)
Old
system
New
system
With equal retirement at
age 65
75
81
57
73