pensions core course summary & application of tools · 2020. 9. 16. · pensions core course...
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W O R L D B A N K C O R E C O U R S E O N P E N S I O N R E F O R M
W A S H I N G T O N , D . C . , M A R C H 2 0 1 4
PENSIONS CORE COURSE SUMMARY &
APPLICATION OF TOOLS
REVIEW
PENS IONS CORE COURSE
REVIEW
• Conceptual Framework • 5 Pillar typology
• Social assistance vs. social pensions
• DB vs. DC 1st & 2nd Pillars
• Occupational & Individual schemes
• Unique ID & Administrative Systems
• Regional challenges and trends • Inverting Pyramid = Central and Eastern Europe
• Sub-Saharan Africa – Coverage & design needs
• Latin America & Caribbean – Coverage & beyond pensions
Mandatory, contributory scheme –
DB, DC; PAYG, funded.
Social
assistance
for
households
&/or
elderly.
Occupational & Individual
Pensions Savings
Special incentives
for pension savings
for informal sector
(eg. MDC, ex-post
subsidies)
Individual pre-retirement wage as a % of the average wage in the economy
Pe
nsi
on
be
ne
fit
as
a p
erc
en
t o
f in
div
idu
al p
re-r
etire
me
nt
wa
ge
STYLISTIC ILLUSTRATION OF POSSIBLE MULTI-PILLAR DESIGN
4
REVIEW (CONT.)
• Tools • PROST
• Adept
• APEX
• Comparative data
• Investment Management/governance/
accounting/ financial reporting
• Regulation & supervision
• Civil service pensions
• Alternative perspectives
USING DIAGNOSTIC TOOLS – THE BULGARIA CASE
PENS IONS CORE COURSE
ENVIRONMENT AND DESIGN FEATURES
• Demographic environment
• Old-age dependency ratio set to double by 2060; accelerated by steady net emigration
• Low and protracted fertility rates well below replacement.
• Economic environment
• High labor force participation both men and women
• Low labor force participation among youth and older workers above age of 55
• Pillar 0
• Objective: poverty prevention
• Eligibility: age 70 (legislated)
• Benefit level: 110/136 leva (20% of avg. monthly salary)
• Pillar I
• Objective: income replacement (w/progressivity)
• Old age
• Eligibility: Age 65m/63f, LOS 40m/37f years; Benefit level: 289 leva (42.2% of avg. monthly salary)
• Disability and Survivor
• Eligibility and benefit level depends on degree of disability, years of contribution, age
• Pillars II and III
• Objective: savings for income replacement
• Benefit level: based on accumulated savings
REFORMED PAYG DESIGN
• Contribution Rate • Non-switchers: 17.8% to Pillar I
• Switchers: 12.8% (Pillar I) and 5% (Pillar II)
• Government: 12% of insured income
• Eligibility conditions • Age: 65m/63f
• Service: 40m/37f years
• No early retirement
• Eligibility conditions for a minimum contributory pension • Age 67 with 15 years of contributions
• Around 20% of average insured wage
• Old age pension amount dependent on: • Accrual rate (1.2% and 4% for deferred pension)
• Lifetime wages & valorization
• Indexation to inflation
8
DEMOGRAPHIC TRENDS
9
65 15 35
1
11
21
31
41
51
61
71
81
91
2011 female female
65 15 35
1
11
21
31
41
51
61
71
81
91
2053 female male male
PROST Population Pyramid
WORSENING DEPENDENCY RATES
10
0%
20%
40%
60%
80%
100%
120%
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
20
42
20
44
20
46
20
48
20
50
20
52
20
54
20
56
20
58
20
60
20
62
20
64
20
66
20
68
20
70
20
72
20
74
Old Age Dependency Rate
Population Dependency Rate
System Dependency Rate (total beneficiaries)
System dependency rate around 100%:
1 beneficiary: 1 contributor
12.8% PAYG contribution rate could only afford to pay 12% PAYG
replacement rate
PROJECTED AVERAGE REPLACEMENT RATE FOR A NEW OLD AGE PENSIONER
11
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
201
2
201
4
201
6
201
8
20
20
202
2
202
4
202
6
202
8
203
0
203
2
203
4
203
6
203
8
204
0
204
2
204
4
204
6
204
8
205
0
205
2
205
4
205
6
205
8
206
0
206
2
206
4
206
6
206
8
20
70
207
2
207
4
Avg RR male (new, non-switcher) Avg RR female (new, non-switcher)
Avg RR male (new, switcher) Pillar I and II Avg RR female (new, switcher) Pillar I and II
last cohort retiring with full
pension in 2023m/2021w. After that minimum pension provided at age 67
First cohort of switchers start to receive pensions from Pillar II in 2023w/2025m
Pillar II introduced in 2002 (mandatory for those born
after 12.1.1959)- first cohort to retire from Pillar
II was 42 in 2002
PROJECTED AVERAGE REPLACEMENT RATE FOR AN EXISTING OLD AGE PENSIONER
12
Funded Pillar Replacement Rate: Assuming real interest earned on individual
account is 3 percent annually.
0%
10%
20%
30%
40%
50%
60%
Avg PAYG RR Avg RR (Pillar I and Pillar II)
40% of contributors insured at half avg. wage; 20% insured at min.; Many will receive the minimum contributory pension & could impair contribution compliance.
Minimum pension with 15 years of service = 20% of average insured wage
COVERAGE OF THE WORKING AGE POPULATION
13
0%
20%
40%
60%
80%
100%
120%
15 25 35 45 55 Contributor Age
male contributors female contributors male beneficiaries added female beneficiaries added
High rates of youth
unemployment
Low
density
Roughly 55% of WA population contributed
in 2011
Movement
between formal and informal employment
PROJECTED ANNUAL CURRENT BALANCE, % GDP
14
Graph on the
left shows the
projected
deficit with and
without the
estimated
additional cost
of financing
social pensions
for people
without rights
to the pension
system
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
201
2
201
4
201
6
201
8
202
0
202
2
202
4
202
6
202
8
203
0
203
2
203
4
203
6
203
8
20
40
204
2
204
4
204
6
204
8
205
0
205
2
205
4
205
6
205
8
206
0
206
2
206
4
206
6
206
8
207
0
207
2
207
4
Projected PAYG Deficit, % GDP
PAYG Balance, %GDP accounting for government contribution (baseline)
PAYG Balance, %GDP without government contribution (baseline)
Accounting for additional cost for people without pension rights with gov. contribution
Accounting for additional cost for people without pension rights without gov. contribution
OPTION TO INCREASE THE CONTRIBUTION RATE
15
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
20
42
20
44
20
46
20
48
20
50
20
52
20
54
20
56
20
58
20
60
20
62
20
64
20
66
20
68
20
70
20
72
20
74
An increase of 6 percentage points improves the fiscal state
PAYG Balance, %GDP accounting for government contribution +6% increase + costs for ineligible persons
PAYG Balance, %GDP without government contribution and 6% increase to contribution rate + costs for
ineligible persons
EQUALIZATION OF RETIREMENT AGES BETWEEN MEN AND WOMEN AT 65
16
Projected fiscal savings (2024-2050) of about 0.3 percent of GDP (accounting for roughly 20 percent of the system’s
deficit)
Why the savings are not even
greater: Currently the actual
difference in effective retirement
ages between men and women is
smaller than the gap in official
retirement ages
Women tend to work until later
ages in order to meet the length of
service requirement (lower
contribution density due to more
career breaks, especially due to
having children)
On top of that, more men retire
before the official pension age
because mostly men work under
labor categories I and II
(dangerous occupations, military,
police, etc.) where retirement ages
can be lower
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
20
12
20
15
20
18
20
21
20
24
20
27
20
30
20
33
20
36
20
39
20
42
20
45
20
48
20
51
20
54
20
57
20
60
20
63
20
66
20
69
20
72
20
75
PAYG Balance, % GDP: baseline vs. reform
PAYG Balance, %GDP (equal) PAYG Balance, %GDP (baseline)
Equalization
complete by 2024
17
Two tiers of pension system in Bulgaria
Individual earnings, multiple of average
0.5 0.75 1.0 1.5 2.0
Gross pension level (% of average earnings) 33.8 50.7 67.6 101 110.8 Gross replacement rate
(% of individual earnings) 67.6 67.6 67.6 67.3 55.4 Gross pension wealth, male (multiple of average earnings) 9.1 9.1 9.1 9.1 7.5
0
.5
1
1.5
2
2.5
Gross r
ela
tive p
en
sio
n leve
l
0 .25 .5 .75 1 1.25 1.5 1.75 2
Individual earnings, proportion of average earnings
DC Earnings-related
0
.25
.5
.75
1
1.25
Gross r
ep
lace
me
nt rate
0 .25 .5 .75 1 1.25 1.5 1.75 2
Individual earnings, proportion of average earnings
DC Earnings-related
0
.25
.5
.75
1
1.25
Ne
t an
d g
ross r
epla
cem
en
t ra
tes
0 .25 .5 .75 1 1.25 1.5 1.75 2
Individual earnings, proportion of average earnings
Net Gross
19
PENS IONS CORE COURSE
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Kosovo 2011
Kazakhstan 2011
Georgia 2010
Azerbaijan 2011
Tajikistan 2011
Armenia 2011
Albania 2011
Turkey 2010
Kyrgyz Republic 2011
Russia 2011
Moldova 2012
Macedonia 2010
Slovakia 2010
Lithuania 2010
Estonia 2010
Bulgaria 2010
Czech Republic 2010
Romania 2010
Latvia 2010
Belarus 2009
Croatia 2010
Hungary 2010
Montenegro 2011
Slovenia 2010
Poland 2010
Serbia 2010
Ukraine 2010
Pension Spending over GDP
Total Pension Spending
(most recent year available)
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
Bosnia and Herzegovina 2009
Bosnia Republika Srpska 2009
Macedonia, FYR 2009
Croatia 2010
Armenia 2008
Serbia 2010
Montenegro 2007
Moldova 2009
Latvia 2010
Hungary 2010
Romania 2010
Estonia 2010
Poland 2010
Bulgaria 2010
Lithuania 2010
Azerbaijan 2007
Tajikistan 2004
Turkey 2008
Slovenia 2010
Kyrgyz Republic 2008
Albania 2009
Czech Republic 2010
Kazakhstan 2009
Ukraine 2010
Slovak Republic 2010
Belarus 2008
Russian Federation 2007
Uzbekistan 2005
Beneficiaries / Population 65+
(most recent year available)
0% 20% 40% 60% 80% 100% 120%
Armenia 2008
Azerbaijan 2007
Albania 2008
Kyrgyz Republic 2008
Serbia 2007
Macedonia, FYR 2009
Turkey 2008
Ukraine 2010
Kazakhstan 2009
Bosnia and Herzegovina 2009
Russian Federation 2011
Bosnia Republika Srpska 2009
Romania 2008
Moldova 2011
Croatia 2010
Bulgaria 2008
Slovak Republic 2003
Poland 2008
Lithuania 2009
Slovenia 2008
Latvia 2009
Hungary 2008
Belarus 2008
Estonia 2004
Czech Republic 2007
Active Contributors / Labor Force
(most recent year available)
23
PENS IONS CORE COURSE
Average Transfer Value - Targeting
Total XP MP NP
All social protection 48.3 44.6 67.7 47.3
All social insurance 43.4 32.2 59.1 43.0
Old age pension 37.4 26.4 50.2 37.2
Disability pension/allowance 4.7 4.6 6.6 4.6
Survivorship pension 1.3 1.2 2.2 1.2
All labor market programs 0.4 0.4 0.3 0.4
Unemployment benefit 0.4 0.4 0.3 0.4
All social assistance 4.5 12.0 8.3 3.9
Social assistance 0.2 0.4 0.6 0.1
Child allowance, up to 2 yo 1.6 2.5 1.9 1.5
Other family allowances 0.2 0.0 0.2 0.2
Monthly child allowance 1.3 2.4 1.7 1.2
Heating allowance 0.3 1.8 1.4 0.2
Guaranteed minimum income 0.7 4.8 2.5 0.3
Other sa benefits 0.3 0.1 0.1 0.3
All remittances 6.1 1.0 2.4 6.6
Remittances 6.1 1.0 2.4 6.6
Table 3_2 : Average Transfer Value, Per Capita
All households
Coverage
Total Q1 Q2 Q3 Q4 Q5
Direct and indirect beneficiaries
All social protection 70.5 88.6 81.8 73.0 62.2 47.2
All social insurance 54.5 68.8 65.9 60.2 45.4 32.1
Old age pension 46.5 59.3 57.4 50.5 39.6 25.8
Disability pension/allowance 16.2 22.3 19.6 18.1 11.6 9.5
Survivorship pension 8.5 10.2 9.4 9.3 7.8 5.9
All labor market programs 2.2 1.6 3.1 2.5 2.7 1.4
Unemployment benefit 2.2 1.6 3.1 2.5 2.7 1.4
All social assistance 27.5 39.0 29.4 23.6 25.9 19.6
Social assistance 0.7 2.3 0.6 0.0 0.3 0.3
Child allowance, up to 2 yo 5.9 8.5 7.3 3.6 6.3 3.9
Other family allowances 0.8 0.6 0.6 1.2 1.1 0.5
Monthly child allowance 20.7 24.2 21.2 18.8 22.3 16.8
Heating allowance 4.2 15.7 2.7 1.7 0.4 0.3
Guaranteed minimum income 3.8 12.6 4.5 0.8 0.5 0.5
Other sa benefits 1.8 2.3 2.2 2.0 1.7 0.8
All remittances 4.3 3.4 4.9 3.1 4.4 5.6
Remittances 4.3 3.4 4.9 3.1 4.4 5.6
Table 5_3 : Coverage
Generosity
Total Q1 Q2 Q3 Q4 Q5
All social protection 29.5 62.9 41.2 29.5 20.5 11.6
All social insurance 33.8 66.2 45.2 32.5 24.3 14.2
Old age pension 34.0 64.8 44.4 33.1 24.0 14.6
Disability pension/allowance 12.9 22.9 16.7 12.4 10.3 6.3
Survivorship pension 5.9 11.9 8.2 6.0 3.7 3.1
All labor market programs 8.2 24.3 12.6 6.2 5.2 5.1
Unemployment benefit 8.2 24.3 12.6 6.2 5.2 5.1
All social assistance 7.8 20.1 9.9 6.4 5.6 3.7
Social assistance 14.0 19.4 11.7 9.6 10.3 9.1
Child allowance, up to 2 yo 13.6 27.0 15.3 16.1 11.5 8.1
Other family allowances 11.7 23.8 21.5 10.6 8.1 8.8
Monthly child allowance 3.0 7.8 3.6 3.1 2.3 1.6
Heating allowance 5.5 7.0 5.1 2.3 3.5 1.3
Guaranteed minimum income 14.5 21.3 9.5 15.0 2.7 8.3
Other sa benefits 6.2 9.4 13.3 3.6 3.7 0.9
All remittances 51.5 56.6 55.3 51.2 34.0 57.1
Remittances 51.5 56.6 55.3 51.2 34.0 57.1
Table 9_3 : Generosity
Direct and indirect beneficiaries
Notes:
Generosity is the mean value of the share transfer amount received by all beneficiaries in a group as a share of total welfare
aggregate of the beneficiaries in that group.
SIMULATED POVERTY IMPACT (% POOR)
27
Reduction in % Poor
Poverty Rate
After
pensions
income
Poverty
Rate with no
pension
income
Poverty
Reduction
with Pensions
Income
Individual level
Population 50.8% 58.8% 8.0%
Youth (0-14) 62.0% 66.5% 4.6%
Working Age (15-60) 47.2% 52.5% 5.3%
Elderly (60+) 35.0% 76.1% 41.1%
Elderly (60-74) 35.6% 73.8% 38.2%
Elderly (75+) 33.3% 82.8% 49.5%
Non-Elderly (0-59) 52.2% 57.2% 5.1%
Household level
Elderly-only households 4.1% 85.1% 81.0%
Some elderly households 48.2% 72.8% 24.7%
Non-Elderly Households 43.3% 45.5% 2.3%
Total 42.0% 53.2% 11.2%
SUMMARY
• PROST pointed out beneficial impact of increasing retirement age & contribution rate. But system dependency rates severe and will worsen
• Problem of adequacy, with low income replacement yet little
room to increase benefits. Elderly overage projected to contract => creating additional fiscal pressure
• Sustained low fertility will burden current and future generations.
• ADEPT HHS data highlighted importance of social assistance expenditures for families aimed to support growth in fertility.
• Pensions also found to have profound anti-poverty impact.
• Some SA expenditures could be better targeted.
• But much of such expenditures may be necessary in recent economic conditions.