Transcript Czech Republic

Pension systems during the
financial and economic crisis
Edward Whitehouse
Social Policy division, OECD
Pension funds’ real returns
Bulgaria
Lithuania
United
States
Hungary
Netherlands
Finland
United
Kingdom
Poland
Sweden
Slovak
Republic
Germany
Real investment
return, 2008
-30
-25
Czech
Republic
-20
-15
-10
-5
0
Source: OECD
Explaining differences in 2008 returns
75
Ireland
Equities,
% of total
portfolio
United
Kingdom
United
States
Australia
Japan
Canada
Netherlands
Iceland
Poland
Portugal
Hungary
-30
Germany
Switzerland
25
Spain
Mexico
Slovak R
Real investment
return in 2008 (%)
-40
50
Denmark ,
Sweden
Austria
Norway
Czech R
0
-20
-10
0
Economic crisis
Falling
output
1
0
-1
-2
-3
-4
-5
OECD 30
Change in GDP
(%)
2008
2009
2010
Economic crisis
Falling
output
Rising
unemployment
12.5
1
Euro zone
0
10
OECD 30
-1
7.5
-2
5
-3
2.5
-4
-5
OECD 30
Change in GDP
(%)
Unemployment
(% of labour force)
0
2008
2009
2010
2009
2010
2011
Economic crisis
Falling
output
Rising
unemployment
Growing
budget deficits
0
12.5
1
Euro zone
0
10
-2.5
OECD 30
-1
7.5
-5
-2
5
-3
-7.5
2.5
-4
-5
OECD 30
Change in GDP
(%)
Unemployment
(% of labour force)
Budget balance
(% of GDP)
0
2008
2009
2010
2009
2010
2011
-10
OECD 30
2007 2008 2009 2010
Source:
OECD
Impact on pensions
• Financial crisis
– Defined-contribution plans
– Private, defined-benefit plans
– Public pension reserves
• Economic crisis
– Countries with automatic adjustments
• But no country or pension scheme is immune
Detailed analysis
Younger/prime-age workers People near to retirement
Strongly affected
Individuals in mature,
private DC schemes
(especially i) where exposure to
riskier assets is greater and
ii) where people are required to
annuitise their balances at
retirement)
Moderately affected
Individuals in mature,
private DB schemes
Public, PAYG systems with
deficits
Less affected
Most individuals in this
group
Individuals with recently
established private DC
schemes
Retirees
Retirees who did not
annuitise their DC balances
at retirement
(especially those with greater
exposure to riskier assets)
Retirees in plans with
automatic benefit
adjustments
(e.g. conditional indexation,
balancing mechanisms,
sustainability adjustments)
Retirees who annuitised DC
balances before the crisis
Most retirees with DB
private pensions or public,
PAYG benefits
Role of private pensions for workers
Iceland
Mexico
Denmark
Mandatory defined contribution
Voluntary defined contribution
Mandatory defined benefit
Netherlands
Slovak Republic
United Kingdom
Australia
Poland
United States
Sweden
Ireland
Canada
Hungary
Switzerland
Belgium
Germany
Private pensions
New Zealand
per cent of total
retirement-income
package
Norway
Czech Republic
0
25
50
75
100
Capital income of today’s pensioners
Canada
Netherlands
United States
Australia
United Kingdom
Denmark
Ireland
Norway
New Zealand
Sweden
Germany
Iceland
Japan
Greece
Luxembourg
France
Belgium
Portugal
Spain
Italy
Hungary
Austria
Poland
Slovak Republic
Czech Republic
Percentage of total non-work
retirement income from capital
0
10
20
30
40
50
Pension for full-career low earner
Netherlands
Romania
Czech Republic
Sweden
Finland
Bulgaria
Slovenia
Lithuania
Latvia
Estonia
United Kingdom
Pension level
(% of economy-wide
average earnings)
United States
Germany
0
5
10
15
20
25
30
35
40
45
50
5 years’ unemployment/early retirement
Netherlands
Romania
Czech Republic
Sweden
Finland
Bulgaria
Slovenia
Lithuania
Latvia
Estonia
United Kingdom
Pension level
(% of economy-wide
average earnings)
United States
Germany
0
5
10
15
20
25
30
35
40
45
50
Policy responses: what to do
• Old-age payments as part of economic-stimulus packages
(e.g. Australia, Greece, UK)
• Strengthen safety-nets (e.g. Finland, France, Spain)
• Ensure investment options for DC schemes with default
switch to less risky assets with age (e.g. Poland)
• Temporarily relax regulations for private DB schemes (e.g.
Netherlands)
• Flexible timing of annuity purchase (e.g. Ireland)
• Improve governance and risk-management of pension
funds and focus on financial education
Investing for the long term
12.5
90%
80%
10
Simulated annual
real rate of return
(%)
70%
60%
Median
40%
7.5
30%
20%
5
10%
2.5
0
Bonds
Conservative
Balanced
Risky
Equities
Policy responses: to do or not to do?
• Temporary access for individuals to DC accounts (e.g.
Australia, Iceland, US)
– But risk of lack of resources in retirement
• Temporary reduction in contribution by employers or
governments (e.g. US –corporate, Estonia, Lativa, Lithuania)
– But again risk of lack of resources in retirement
• Bail out of DC accounts (e.g. Israel)
– But problems of cost, equity, moral hazard
• Guarantees for DC accounts (e.g. Switzerland, Slovakia)
– What level? Who pays?
• Use public pension reserves for crisis mitigation (e.g.
Ireland, Norway)
Policy responses: what not to do
• Resort to early retirement or other benefits (disability,
unemployment)
– negative and persistent effect on labour market
• Indeed, workers may wish to work longer in countries
with more mature DC schemes (e.g. Australia, US)
• And other countries proposing to increase pension ages
in response to crisis (e.g. Finland, Hungary, Netherlands)
• Abandon long-term goals for short-term expediency (e.g.
Argentina, Slovak Republic)
Conclusions
• Financial crisis focused attention on investment
risk and pensions
– But all pension systems subject to risks
• Financial and economic crisis highlights and
exacerbates the problems of pension systems
• Long-term strategy should remain diversification
and balanced old-age provision
Further details and contact
Edward Whitehouse
[email protected]
www.oecd.org/els/social/pensions