many countries cee

Download Report

Transcript many countries cee

Reforms in Central Eastern Europe:
Selected issues
Marek Góra
Warsaw School of Economics
Projection of pension expenditure (%GDP)
2004
Belgium
Czech Republic
Denmark
Germany
Estonia
Greece
Spain
France
Ireland
Italy
Cyprus
Latvia
Lithuania
Luxemburg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Slovenia
Slovakia
Finland
Sweden
UK
2025
10.4
8.5
9.5
11.4
6.7
n.a.
8.6
12.8
4.7
14.2
6.9
6.8
6.7
10.0
10.4
7.4
7.7
13.4
13.9
11.1
11.0
7.2
10.7
10.6
6.6
Source: European Commission
2050
13.4
8.9
12.0
11.6
5.1
n.a.
10.4
14.0
7.2
14.4
10.8
5.3
7.6
13.7
13.0
10.0
9.7
13.5
9.5
15.0
13.3
7.3
13.5
10.7
7.3
15.5
14.0
12.8
13.1
4.2
n.a.
15.7
14.8
11.1
14.7
19.8
5.6
8.6
17.4
17.1
7.0
11.2
12.2
8.0
20.8
18.3
9.0
13.7
11.2
8.6
Δ(2050-2004)
5.1
5.6
3.3
1.7
-2.5
n.a.
7.1
2.0
6.4
0.4
12.9
-1.2
1.8
7.4
6.7
-0.4
3.5
-1.2
-5.9
9.7
7.3
1.8
3.1
0.6
2.0
Countries marked according to
level of expenditure:
green – low and/or decreasing
yellow – intermediate
purple – high and/or increasing.
Tradition and change in CEE
Strong tradition of generous and reliable pensions paid
by traditional pension systems in continental Europe. That
tradition is fully internalised by the people. This makes the
situation different from other regions where historically
pensions were not so generous and/or reliable.
CEE countries belong to that tradition, which slows down
reforms. On the other hand, economic transition that itself
had nothing to do with pension reform created a window
of opportunity for radical reforms.
Two possible goals for pension reforms
Channelling the flow of contributions from workers to
retirees through financial markets, which should lead to
PV(B) = PV(C) and can also generate a number of positive
externalities (financial market development, increase of
savings, public education, and so on).
Reintroducing intergenerational equilibrium (stable
proportions of GDP allocated to each generation), which
leads to PV(B) = PV(C), no externalities.
Intergenerational equilibrium
GDP2
GDP1
C
R
Intergenerational equilibrium
C2*
GDP2 GDP2* GDP1
C1
C2
C2*
If C2 is the same
section of GDP2 as C1
of GDP1 then welfare
growth is not afected
(strong).
If C2* is larger
section of GDP2
than C1 of GDP1
then welfare growth
is weaker.
The pension system (macro perspective)
The pension system is a way of dividing current GDP
between a part kept by the working generation and a part
allocated to the retired generation.
GDP  GDP W  GDP R
If
GDPR/GDP = const.  economic neutrality
(production factors remuneration not affected)
Proportions of the division are subject to public choice.
The pension system (micro perspective)
From the individual perspective, the pension system is a
way of income allocation over life cycle. In the activity
period individuals buy pension rights; after retirement
they sell the rights.
If
PV(C) = E[PV(B)]

actuarial neutrality
(decisions on income allocation over life-cycle not
affected)
Reduction of pension expectations
Key objective for pension reform is to reduce ex ante
pension expectations expressed in relative terms.
The only other option is to adjust pensions ex post, which
means reduction of pension levels in absolute terms.
Pension expectations
Reduction of pension expectations contributes to stronger
GDP growth, hence contributes to higher welfare of both
the working and the retired generation
Keeping pension expectations at inflated level slows down
GDP growth, hence reduces welfare of both generations
and leads to the necessity to cut pensions ex post.
Pension reform designs in CEE
Diversity of reform designs stemming from differences in
economic approaches as well as in technical methods
applied.
CEE countries combine experiences coming from: AngloSaxon countries, Latin American countries, Scandinavia
and Western Europe.
DB vs. DC in universal public systems
CEE countries are pretty advanced in reforming their
pension systems
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Macedonia
Poland
Romania
Slovakia
Slovenia
DB
X
X
X
X
X
-X
X
-X
X
X
NDC
-----X
--X
----
FDC
X
X
-X
X
X
X(opt.)
X
X
X(exp.)
X
--
Universal (mandatory) funded part of the pension system
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Macedonia
Poland
Romania
Slovakia
Slovakia
Since
2002
2002
Mandatory
<42
<40
People (m)
2.4
1.3
2002
1998
2001
-2005
1999
2008(exp.)
2005
--
<18
0.5
2.6
0.9
-0.1
12.4
<30
-new entr.
<30; <50
<35
<18
--
1.1
--
Contrib. (%)
5
5
-6
8
2 incr. to 10
-7
7.3
2 incr. to 6
9
--
Assets (€, bn)
0.5
2.2
0.5
5.9
0.2
-30.6
0.7
--
Pension assets (universal system; projection)
2015
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
Romania
Slovakia
Slovenia
Source: Allianz Global Investors
3.6
10.2
3.4
30.5
5.4
127.0
2.0
7.6
-
Areas that need further developments
Payout phase regulations
Retirement age
Investment regulations
Returns
Fees
Competition
Conservative investment
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Macedonia
Poland
Romania
Slovakia
Slovenia
equities (%)
LO
LO
LO(vol.)
HI
LO
LO
HI(vol.)
LO
HI
not yet
LO
LO(vol.)
foreign inv. limit
15%
15%
no limit
30%
no direct limit
5%
15%(*)
actual foreign inv.
LO
LO
HI
LO
LO
LO
LO
-
-
-
High time for payout phase legislation
Accumulation phase fully legislated in 1998, thou some
amendments and adjustments are needed (the changes
needed are mostly driven by development of the system as
well as by development of the economy).
Payout phase legislation has been slipping for many years.
Now it is eventually at the final stage of legislation process.
Payout phase
The payout phase is less developed then the accumulation
phase
Bulgaria
Croatia
Type
annuity
annuity
Czech Republic
Estonia
Hungary
annuity
annuity
Latvia
annuity
Lithuania
Poland
annuity
Romania
Slovakia
Slovenia
annuity
annuity
-
Provider
pension fund
authorised
insurer
pension fund or
insurer
insurer or social
security
institution
Specialised
annuity providers
-
Accumulation phase: two individual accounts
Entirely new old-age pension system (separated within
social security). In the accumulation phase the system is
based on individual accounts of two types.
From the participant’s viewpoint the two parts of the
system are very similar (almost identical), both are DC.
They are managed in different way.
Public-private partnership
The reform was not privatisation of the system but
privatisation of pension services providers.
Being partially privately managed the system itself remains
public. Actually, public institution providing services in the
remaining part of the system could be also privatised without
any fundamental impact on the system itself.
[These features of the system are often misinterpreted with
respect to the new Polish system.]
Key goals
Low cost for participants (in terms of contribution needed
in accumulation phase to generate certain level of pension).
Same rules for all participants
Contributing to an increase of labour supply in elder
groups (50+)
Flexibility of retirement decisions
Transparency
Simple rules, easy to understand for participants
Low administrative costs
Retirement products
In consequence:
No lump-sum payments
No programmed withdrawals
Annuities only since the system is mandated in order to
reach the social goal
Annuities providers
Annuities will be provided by specialised private Annuities
Companies (AC) competing in the market
AC will be supervised by Financial Supervision Authority
and by National Actuary
AC will be separated from Annuities Fund they will
manage [Similar to the separation of Pension Companies
and Pension Funds.]
Technically payments will be delivered by ZUS together
with annuities out of the other part of the system
Tables (tarifs)
Annuity Companies will not be allowed to differenciate
tarifs for participants according to their individual
characteristics (this particularly matters for men and
women).
A specially designed mechanism will offset possible effects
of uneven distribution of men and women served by Annuity
Companies.
The social goal
The difficulty of designing the payout phase is to find the
most efficient way of using market for reaching the social
goal.
Nowadays it is not redistribution (poverty alleviation) that can
be delivered more efficiently via the budget. Instead, publicly
or privately run universal pension system is to provide people
with a method of income allocation over life cycle that at the
macro level tends to intergenerational equilibrium.
To reach the social goal we need:
Individual accounts
Universal coverage
Universal simple rules
Focusing on the sole goal of the system (income allocation)
The universal system should be of reasonable size to leave
enough room for voluntary, hence private per se (not only
privately run) schemes