Sustainability of Pension Systems in the New EU Member States and Croatia

Coping with Aging Challenges and Fiscal Pressures

Leszek Kasek, Thomas Laursen, Emilia Skrok

• Publisher: World Bank Publications
• Year: 2008
• eBook ISBN: 9780821373705
• Topic: Business
• Subtopic: Business Development
• Index: Business

This study finds that pension reforms in recent years have improved the efficiency and sustainability of pension systems in the new member states of the European Union and Croatia. However, for many countries, these probably have not gone far enough to ensure long-term sustainability, given the aging of the population. Reforms have included changes to Pay-As-You-Go (PAYG) systems, including increases in retirement ages (not at least for women), new benefit formulas, and new indexation mechanism. Some countries (Latvia and Poland) have further strengthened the link of contributions and benefits to the sustainability of the PAYG system through the introduction of national defined contribution accounts. The link is strengthened also by moving to a point system, which has been adopted by many of the countries. Several countries have introduced a second, private, pension pillar, funded through diversion of part of the pension contributions, thereby diversifying risk. However, some countries (in particular the Czech Republic, Slovenia, and Romania) will need to do more to safeguard the long-term viability of their pension systems, while others face challenges to ensure equitable pension systems and adequate living standards for all elderly people.

Table of contents

• Contents
• Acknowledgments
• 1. Overview of Current Pension Systems
• 2. Medium-Long Term Sustainability of Pension Schemes
• 3. Conclusions
• References
• Table 1. Retirement Ages in the EU10+1 in 2007
• Table 2. Structure of Pension Systems in the EU10+1 Countries
• Table 3. Basic Characteristics of Mixed Old-age Pension Systems
• Table 4. Gross Replacement Rates in Mid-1990s and Mid-2000s, Percent
• Table 5. Basic Demographic and Labor Market Characteristics by Gender
• Table 6. Indexation of Pensions in Selected European Countries
• Table 7. Contribution Bases for Self-employed, 2005
• Table 8. Cross-subsidization of Self-employed
• Table 9. Implicit Individual IRR of the Pension Systems in the EU10+1 Countries, 2006
• Table 10. Social Insurance Balance, Percent of GDP
• Table 11. Financial Indicators of Agricultural Social Insurance Fund (KRUS) in Poland in 2000–05
• Table 12. Asset Allocation of Private Pension Funds, 2004 (percent)
• Table 13. Switching to the Second Pillar and Revenue Losses to the PAYG System, 2005
• Table 14. Regulatory Administrative Charges to Second and Third Pillar Pension Funds, 2005
• Table 15. Average Real Rate of Return on Investment of Assets in Private Pension Pillar
• Table 16. Old-age Pension Expenditure: Current Situation and Prospects
• Table 17. Long-term Sustainability of Public Finances
• Table 18. Implied Replacement Rates (Illustrative)
• Table 19. Theoretical Replacement Rate of a Male Worker
• Figure 1. Pension Expenditure in 1996–2004, percent of GDP
• Figure 2. Breakdown of Pension Expenditure in 2004, percent of GDP
• Figure 3. Employment Rate of Older Workers (ages 55–64)
• Figure 4. Average Exit Age from the Labor Force Weighted by the Probability of Withdrawal from the Labor Market
• Figure 5. Benefits per Year of Service (Accrual Rates)
• Figure 6. Pension Contribution Rates in Selected European Countries
• Figure 7. Pension Contribution Rates and Shares of Undeclared Work in the EU10+1 Countries
• Figure 8. Implicit IRRs and Shares of Undeclared Work in the EU10+1 Countries
• Figure 9. Population Aged 65+ Years, Percent Change Relative to 2004
• Figure 10. Eurostat Projections of Old-age Dependency Ratio in Europe
• Figure 11. Projected Average Replacement Rate for Old-Age Pensioners in Romania (Percent of Average Wage)
• Figure 12. Projected Replacement Rates in Croatia 2000–40