Search results

Pension reform is a key policy challenge in Russia. This paper examines how pension spending could increase in Russia in the absence of reforms, quantifies the impact of some recent proposals, and suggests some alternatives that would ensure public pension benefits - relative to wages - not fall from current levels while containing spending

This paper discusses the role which (funded) defined benefit private sector occupational pension schemes play in national pensions in a sub-group of OECD countries. The paper shows that in the majority of countries under consideration statutory (state) pension schemes are the main if not only source of income in retirement for most people, with occupational pensions only playing at most a minor role. In several countries private sector occupational pension schemes do play an important role in providing pensioner incomes though. In these countries there has generally been a shift from DB to DC pensions, with the risks associated with pensions moved from businesses to individuals. Australia, for example, shifted from DB to compulsory DC pensions a generation ago, leaving only a few major businesses with any sizeable DB pension liabilities now. The US has undergone a similar shift though there is no compulsion. In the UK the economic and financial crisis has accelerated the closure of existing DB pension schemes and dealing with the legacy of DB pension liabilities is becoming a major issue. The picture is similar in the Netherlands and Ireland. The paper also shows the diverging DB arrangements in the private and public sectors, with governments in a number of countries continuing to offer (unfunded) DB pension promises when they have become less popular in the private sector.

This paper analyses the different channels through which particular generations within one society can end up subsidising other generations through the functioning of the welfare state. The welfare state, which is organised and funded by "society" through taxation, plays an important part in almost all countries, often providing services such as education and health care or transfers such as state pensions. Whether a generation receives a net subsidy from another generation (or other generations) can only be determined at the end of their life cycle and not at any particular point in time during their lives. The paper therefore focuses on the flows between the welfare state and generations over their whole lifespan, from birth to childhood, to working life to old age and eventual death. The paper argues that depending on the underlying cause of a potential inter-generational imbalance, the policy response might very well differ. Tax smoothing (and letting debt fluctuate as a buffer) is an appropriate response to varying cohort sizes (the baby boomer example). However, tax smoothing does not help with more structural changes such as the increase in longevity across successive generations. Increasing retirement ages in line with increases in longevity would be one appropriate response as would be making entitlements in old age less generous. In reality many developments take place at the same time so that a policy mix will be required. Last but not least the paper shows that the issue of funded versus unfunded public sector pensions is not as clear cut as some might believe it to be. Perhaps counter intuitively, having unfunded public sector pensions might actually be inter-generationally fairer than having funded pensions. This will depend on the circumstances though.

There has been much discussion in the British general and specialised media over the last year on the adverse consequences of the economic and financial crisis on the British pension system. It should come as no surprise that the crisis has also adversely affected pension systems in most other countries too. This paper contributes to the current debate on pensions in the UK by discussing how pension systems outside the UK have been affected by the economic and financial crisis, and what governments have done to deal with the emerging issues. The paper starts by discussing what theory tells us about the likely impact of this type of crisis on different types of pension systems. While the impact should be more long term in the case of pay-as-you-go state pensions and defined-benefit occupational pensions, theory would suggest that the effects will be felt more immediately in the case of defined-contribution pension schemes or private savings. The paper then goes on to present a number of key developments and policy actions (if any) that have taken place in a select number of countries in the realm of pensions since the onset of the crisis in the second half of 2007. These countries have been chosen as they are representative for a large number of countries, from Chile with its very high dependency on private pensions to Germany, where unfunded social security pensions remain by far the most important source of retirement income. The paper finds that the real world experiences are in line with what could be expected theoretically and argues that regardless of whether a country relies more heavily on an unfunded pay-as-you-go state pension system or funded private pensions (whether defined benefit or defined contribution) the crisis has had an adverse effect everywhere. Existing systems will have to be refined or restructured more fundamentally, with the exact response likely to vary from country to country reflecting society's interpretation of "inter-generational fairness". Annex A provides information on the respective ageing trends in these countries, while Annex B discusses the respective arrangements set up to protect current and future pensioners' entitlements if and when a pension scheme's corporate sponsor becomes insolvent.

This paper is about public sector pensions, an issue that has become increasingly contentious in a number of countries in recent years, including in the United Kingdom. In the UK the public debate has focussed on the perceived generosity of these pensions, which, it is often claimed, contrasts with the pension promises made in the private sector. This paper does not attempt to answer whether public sector pension promises are relatively generous in the UK or elsewhere but instead aims to provide the bigger picture against which a discussion of public sector pension provision could be held. The origin of today's public sector pensions can be traced back at least to Ancient Rome, which offered pensions to its military personnel. Pensions to public sector workers can also be traced back several centuries even though their provision remained on an ad-hoc basis for longer, while universal pension provision for all is a creation of the modern welfare state. The issue of public sector pensions is intrinsically linked to the role of the state in society. Beyond the provision of pure public goods such as defence, the role of the state varies widely across countries, for example in the provision (and funding) of health or long-term care. The role of the state has also changed over time, for example in the telecommunications sector, reflecting technological progress and ideological changes. In most countries working for the state comes with a number of privileges (e.g. job security) but also with certain responsibilities (e.g. relinquishing the right to strike). An international comparison reveals that in a number of countries the state is also a special employer in the sense that it offers more generous pensions than the private sector. This is, however, not the case in all countries. The paper argues that the government might pursue a number of objectives going beyond poverty alleviation by offering more generous pensions but also stresses that more generally the objectives of efficiency, equity and sustainability remain desirable even in the context of public sector pensions.

There is currently a strong perception that public sector pensions are generous relative to those offered in the private sector, leading them to be branded "gold plated". This study argues that pensions should be considered deferred pay; as such any discussion on the relative generosity of pension entitlements in the public and private sectors ought to be conducted against the backdrop of relative public and private sector pay levels. The available evidence shows that median pay is higher in the public sector than in the private sector, but using this to assess relative pay levels is misleading. This is because median pay hides significant variations in relative pay across the genders, occupations and by location. For example, the range of occupations available in the private sector is wider at the lower end of the skills distribution range than in the public sector; for female workers the highest median annual pay in 2008 could be found in education, which is overwhelmingly in the public sector. There is evidence that public sector pay is relatively generous for employees at the lower end of the income distribution but this does not hold for employees at the upper end of the income distribution. In addition, there is substantial evidence that public sector pay is relatively less generous in the south east of England generally and in London in particular. Compared with the private sector, the public sector compensates its employees too little for living in low amenity and/or high cost areas. As a consequence, the quality of public services varies across the UK, with the public sector especially in the south east finding it difficult to recruit and retain skilled staff. Anyone contemplating a reform of public sector pensions ought to take into account the knock-on effects on recruitment and retention of highly-skilled staff in all parts of the UK, and in the south east in particular. As an (unintended) consequence, any reform of public sector pensions might demonstrate the need to review the public sector pay setting structure more generally.

One of the key challenges facing governments as a result of an aging population will be how to balance the public finances in the future in the light of potentially rapidly rising age-related spending. This article presents the underlying causes of population aging & how this might affect future pension & health spending in European Union countries. The article then presents a number of policy options available to policymakers to deal with this challenge, arguing that none of them is without its problems. Nonetheless, European governments are making gradual progress, for example by reforming public pension systems. Adapted from the source document.

This paper focuses on an issue, which so far has received relatively little attention by policy makers and the media, namely that the economic crisis has highlighted inherent weaknesses in existing pension systems in many countries. Using the example of the UK, the paper argues that the economic crisis will usher in further changes to the future provision of pensions, with the role of the private and public sectors likely to evolve in the years ahead. To support this argument, the paper first presents the pension landscape in the UK prior to the crisis, which was dominated by the closure of defined benefit pension schemes in the private sector and the government's reform efforts. The paper then describes the impact of the economic crisis from both a macroeconomic and financial perspective on all aspects of the pension system, from the government's deteriorating public finances to the collapsing funding position of occupational defined-benefit and defined-contribution schemes. The paper concludes by suggesting that the crisis has left the British pension system in a weakened state and that it is unlikely that it will return to its "pre-crisis" status once the economy recovers from the crisis.

This paper presents historical trends in life expectancy in the United Kingdom and other countries and discusses how these trends might evolve over the coming decades. The paper argues that the expected increases in longevity are likely to have significant implications for the structure of pension systems in the future. Individuals, businesses and governments have already responded to these expected increases – for example by working longer, closing defined-benefit pension schemes or introducing parametric reforms to the state pension system – and are likely to change their behaviours further in the future. The issue is complicated by the fact that future longevity trends are uncertain. This makes it more difficult to allocate longevity risk efficiently and fairly across the different economic agents, while making it also more difficult to guarantee the sustainability of the system overall. The paper shows though that innovative solutions to this challenge are being developed, from businesses moving towards hybrid defined-benefit/defined-contribution pension schemes, to governments introducing mechanisms which automatically split the financial burden arising from future increases in life expectancy between state and individual, to businesses taking advantage of new products being developed to transfer any risk to the capital markets.

Pension reforms have been high on the political agenda in many developed countries over recent years and pension issues have been discussed intensely in the public as a result. In recent years, much effort has been devoted to make state, public and private pension systems fiscally more sustainable in the light of demographic change. In many developed countries, this has been achieved - at least ex ante - by encouraging greater private sector and personal involvement. Equally, many governments in emerging economies and developing countries have been pursuing their own pension reform agendas. Nevertheless, despite this spotlight on pensions, many important facets remain badly understood and need to be discussed in greater detail. Most observers would agree that societies have not yet reached the end of the reform process and that dealing with pensions may always remain "work in progress" as new information becomes available – such as on trends in life expectancy - and as societies evolve. Furthermore, additional effort will most likely be required to ensure that the desired outcomes will eventually materialise. The purpose of this note is to ask some of the key questions that could inform future research into pensions. The general issue under consideration is not new. How to structure the future provision of pensions, taking into account wider economic, demographic and societal considerations at home and abroad? Governments around the world have been dealing with this issue for years, international organisations, think tanks and trade unions have given advice, and universities have provided valuable analysis. Societies have been dealing with this in their own particular ways, reflecting differences in cultural and historical backgrounds, and economic and demographic circumstances. Despite the closer integration of the world economy, in most countries, this issue has been treated as a domestic issue. The private sector has played its own important part in many countries by offering occupational pensions or by offering financial products, helping both the sponsors of pensions as well as individuals prepare financially for retirement. The fact that governments across the world have reduced ex ante their future fiscal burden by encouraging greater private sector and personal involvement does not mean though that this will also be ex post the eventual outcome. For the desired outcome to materialise, the private sector and personal involvement must develop as intended. Experience from around the world shows that this has not always been the case, requiring frequent and potentially costly policy changes and putting additional burdens on individuals and businesses alike. The complex interactions between fiscal policy and pension savings also play a role for both – an area touched on briefly later in this essay when we examine the role of tax relief. In a number of developed countries, for example, defined benefit pension plans have been closed to new members as scheme sponsors face increasing liabilities in the light of ever higher life expectancy and find the resulting regulatory funding requirements increasingly unaffordable. Does this trend require adjustments elsewhere in a country's pension arrangements? Will today's structures deliver the desired outcomes or do participants such as governments and financial markets need to innovate? There are a number of ways the issue of future pension provision could be approached. For example, one might want to think about the issue in terms of desirable objectives for a pension system such as: Efficiency (static and dynamic) Equity (fairness) Affordability and sustainability (both financial and social) These objectives could then be used as a core set of overlapping "lenses" when looking at the issue of future pension provision, though other "lenses" are feasible too. Importantly, as we shall demonstrate, these "lenses" can be used to study pensions simultaneously at a range of scales from large "big picture" macroeconomic themes such as political uncertainty to subtler, smaller scale but equally important issues such as the management of assets and liabilities for an individual pension fund. There is also the issue of credibility – in particular, political consistency – which cuts across all the lenses under consideration here and is touched on later in the essay. However, before doing so, this note provides some background on pension arrangements in developed and developing countries.