Pension Reform in Southeastern Europe

Linking to Labor and Financial Market Reforms

Robert Holzmann, Landis MacKeller, Jana Repansek

• Publisher: World Bank Publications
• Year: 2008
• eBook ISBN: 9780821375594
• Edition: 0
• Topic: Politics & International Relations
• Subtopic: Labour & Industrial Relations
• Index: Politics & International Relations

Around the world, pension reform remains at the center of public debate. Its social, fiscal, and macroeconomic implications confront policy makers, practitioners, and academia with challenging questions. Pension systems in aging societies—in need of reform and further stressed by the pressures of globalization—require parallel reforms of the labor market and effective lifelong learning, not only to promote working longer, but to ensure that people can actually do so. At the same time, the working population should be motivated to contribute to pension schemes and prepare for old age. Diversifying the spectrum of risks in a multipillar pension scheme with mandated and voluntary, funded and unfunded, pillars should allow more flexibility in individual retirement decisions and help address reduced public generosity. But diversifying risk on a major scale requires a well developed financial market and calls for reform. At the initiative of the Center of Excellence in Finance (CEF), a conference entitled "International Forum on Pension Reform: Exploring the Link to Labor and Financial Market Reforms" was held in Bled, Slovenia, June 7-9, 2007. High officials from ministries of finance, labor, and social affairs, and central banks presented their country statements on vision and progress in pension, labor, and financial sector reforms. Invited experts explored various reform needs of pension systems and of labor and financial markets. 'Pension Reform in Southeastern Europe: Linking to Labor and Financial Market Reforms', gathers that important discourse in one place. The discourse has continued, and many papers in this collection have been updated since the conference and a few new ones have been included. Expressing views and open discussion in search of best answers on how to move forward in order to succeed was the most important goal of the conference, and of this volume as well. These proceedings should be helpful to policy makers in Southeastern Europe and other parts of the world who are planning pension system, labor, and financial market reforms in their countries.

Table of contents

• Contents
• Preface
• About the Editors
• Abbreviations
• PART I Setting the Stage
• PART II Aligning and Linking the Reforms
• PART III Panels and Country Statements
• Index
• Box 5.1 Key Reforms of Statutory Schemes
• Box 8.1 How Different Countries View Old Age and Retirement
• Box 8.2 Push and Pull Factors in Labor Market Withdrawal
• Figure 2.1 Old-Age Dependency Ratios in Selected World Regions, 2000 and Projected to 2050
• Figure 2.2 Increase in Number of Pension Systems with Second Pillars, 1960–2009
• Figure 2.3 Implicit Tax on Remaining at Work
• Figure 2.4 Ratio of Savers to Dissavers by Region, 1950–2050
• Figure 2.5 Financial Sector Readiness Indicator Scores in Year of Reform and Five Years Later (or in 2006), Selected Countries
• Figure 4.1 Male and Female Retirement Ages in CEF Countries
• Figure 4.2 Loss of Contributors as a Result of Low Coverage, CEF Countries
• Figure 5.1 Activity Rates in the European Union, by Gender, 1970 and 2000
• Figure 5.2 Cohort Comparison in the European Union, by Gender, 1981, 1986, and 1991
• Figure 5.3 Employment Rates of Older Workers, European Union in 2005 and Evolution since 2000
• Figure 5.4 Share of Part-Time Employment in Employment of Age Group 55–64, European Union, 1995–2006
• Figure 5.5 Reasons for Leaving Last Job or Business for Workers Age 55–64, European Union, 1995–2006
• Figure 5.6 Dispersion of Employment Rates, Ages 55–64 and 25–54, European Union, 1983–2006
• Figure 5.7 Employment Rates by Gender, Age 55–64, European Union, 1992–2006
• Figure 5.8 Employment Rates for Men Age 55–64, by Skill Level, European Union, 2000 and 2006
• Figure 5.9 Trends in Replacement Rates: Effect of Enacted Reforms at a Given Retirement Age, 2005 and 2050
• Figure 5.10 Trends in Pension Expenditures, European Union (EU25), 2005–50
• Figure 5.11 Projected Evolution of Theoretical Replacement Rates (TRRs) and Pension Expenditures for Public Pension Schemes, European Union
• Figure 5.12 Change in (Synthetic) Replacement Rate and Decline in Employment Rates between Ages 55–59 and 60–64, Selected European Union Countries, 2006
• Figure 6.1 Welfare Effects in Slovenia for Different Sources of Pension System Financing (Retirement Age 60 and Full Indexation), 1925–2055
• Figure 6.2 Supplementary Pension Savings Required in Order to Keep the Total Pension at the Given Level (Retirement Age 60 and Full Indexation), Slovenia, 1960–2050
• Figure 6.3 Expected Change in the Supplementary Pension Savings Required in Order to Keep the Total Pension at the Given Level with Retirement Age Increased to 65 and Unchanged Indexation of Pensions, Slovenia, 1960–2050
• Figure 6.4 Expected Change in the Deficit of the Slovenian State Pension Fund with a Mandatory Second Pillar, Keeping the Total Pension at the 2000 Level (Retirement Age 60 and Full Indexation), 2005–50
• Figure 7.1 Cross-Sectional Employment Ratios, Population Age 25–64, Hungary, 1970–2005
• Figure 7.2 Age-Adjusted Probability of Employment, by Educational Level, Males Age 25–64, Hungary, 1970–2005
• Figure 7.3 Employment Ratios and Birth Cohort Paths, Males with Primary Education, Hungary, 1970, 1990, and 1996–2001
• Figure 7.4 Age-Adjusted Gross Monthly Wages, by Educational Level, Males Age 25–64, Hungary, 1985–2005
• Figure 7.5 Relative Wages and Birth Cohort Paths, Males with Higher Education, Hungary, 1989, 1996, and 2001
• Figure 7.6 Number of New Retirees, Hungary, 1971–2005
• Figure 7.7 Monthly Old-Age Pensions per Year of Service, by Year of Retirement, Hungary, 2003
• Figure 7.8 Number of Births, Population Age 60, and Eligibility for Pension at Age 60
• Figure 8.1 Demographic Aging: Share of Population Age 60 and Older, 2000–2050
• Figure 8.2 Average Male Retirement Age, United States, 1910–2001
• Figure 9.1 Labor Force Participation Rates by Age Group, Southeastern Europe, 1980, 1995, and 2005
• Figure 9.2 Change in Labor Force Participation Rates between 1980 and 2005, by Age Group, Southeastern Europe
• Figure 9.3 Labor Force Participation Rates by Age Group, Southeastern Europe and Austria, 2005
• Figure 9.4 Labor Force Participation Rates by Age Group, Southeastern Europe and Switzerland, 2005
• Figure 9.5 Change in Labor Force Participation Rates between 1980 and 2005, by Age Group, Austria and Switzerland
• Figure 9.6 Trends in Economic Activity among Men and Women Age 50–64 in 21 OECD Countries, 1950–2000
• Figure 9.7 Male Exit Rates and Net Earnings Replacement Rate at the Standard Retirement Age, 14 OECD Countries
• Figure 9.8 Distribution of Postretirement Earnings among U.S. Men Age 62 and Older
• Figure 10.1 Labor Market Participation Rates, 2002
• Figure 10.2 Net Contribution to Public Finances Depending on Age, 2004
• Figure 10.3 Danish Public Budget without Pension Reform
• Figure 10.4 Share of Lifetime Spent in the Labor Force with and without Reform
• Figure 10.5 Labor Force with and without Reform
• Figure 11.1 Employment Rate of Workers Age 55–64, EU25 and Poland, 1997–2006
• Figure 11.2 Average Age of Exit from the Labor Market, EU25 and Poland, 2002–06
• Figure 11.3 Number of Newly Granted Pensions (Old Age and Disability), Poland, 1990–2004
• Figure 11.4 Number of People Receiving Old-Age Pensions and Preretirement Benefits below Retirement Age, Poland, 1997–2005
• Figure 11.5 Average Effective Retirement Age, Poland, 1990–2004
• Figure 11.6 Age Structure of New Old-Age Pensions Granted in 2006, Poland
• Figure 11.7 Year of Reaching the Minimum Age for the Right to an Early Old-Age Pension or Bridging Pension
• Figure 11.8 Accumulation of Pension Capital, Poland
• Figure 11.9 Changes in Pension Level Depending on Retirement Age, Poland
• Figure 11.10 Projection of Pension Expenditure, Poland, 2004–50
• Figure 12.1 Employment Rates, Netherlands and Selected OECD Countries, 2005
• Figure 12.2 Employment Rates of Older Workers, Selected Countries, 1971–2005
• Figure 12.3 Employment Rates by Age and Gender, Netherlands, 1971–2005
• Figure 12.4 Employment Rate Projections by Gender, Netherlands, 2005–40
• Figure 12.5 Trend in Average Exit Ages and Change in Employment Decomposed, Netherlands
• Figure 12.6 Older Workers (55–64) and the Labor Market, Netherlands
• Figure 12.7 Age-Earnings Profiles by Gender, Netherlands and Selected OECD Countries, Early 2000
• Figure 12.8 Average Earnings Profiles by Gender and Skill Level, Netherlands
• Figure 13.1 Composition of Financial Assets in Balance Sheets, Selected Countries, 2000
• Figure 13.2 Relationship between Key Economic Variables and Pension Fund Assets, Cross-Country Data, 2005
• Figure 15.1 Proportions of Those Switching to Pillar II, by Type of Fund, Estonia
• Figure 15.2 Proportions of Those Switching to Pillar II, by Year of Change, Estonia
• Figure 15.3 Pillar II Assets, by Investment Strategy, Estonia, 2002–06
• Figure 15.4 Pillar II Investments, by Asset Type, Estonia, End of Second and Fourth Quarters, 2004–06
• Figure 15.5 Pillar II Investments, by Country or Region, Estonia, by Quarter, 2004–06
• Figure 15.6 Fees and Nominal Investment Returns of Pension Funds, Estonia
• Figure 15.7 Investment Returns of Different Types of Pension Funds, Estonia
• Figure 15.8 Pillar II System Costs, Estonia, Cumulative, 2002–06
• Figure 15.9 Assets of Mandatory Pension Funds, Estonia, 2002–30
• Figure 15.10 Investment Fund Market, Estonia, 2001–06
• Figure 15.11 Investment Fund Asset Shares, Estonia, End of Second and Fourth Quarters, 2001–06
• Figure 15.12 Pillar II Investments, by Asset Class and by Country or Region
• Figure 16.1 Domestic Financial Sector Development, Selected Countries, End 2004
• Figure 17.1 Institutional Players in the Reformed Pension System, FYR Macedonia
• Figure 17.2 Pillar II Asset Portfolio, FYR Macedonia, December 31, 2006
• Figure 19.1 Average Amount Earned by Those with Positive Earnings, by Age Group, Selected Countries
• Figure 19.2 Labor Market Flexibility, Selected Countries
• Figure 21.1 Projected State Pay-as-You-Go Pension Expenditure as Share of GDP, with No Change in Average Effective Retirement Age, Slovenia, 2005–50
• Figure 21.2 Projected Ratio of Public Debt to GDP, with No Change in Average Effective Retirement Age, Slovenia, 2005–50
• Figure 21.3 Projected Net Wage, with No Change in Average Effective Retirement Age, Slovenia, 2005–50
• Figure 21.4 Projected Average Retirement Age of Cohorts Necessary to Keep Net Replacement Rate Equal to 70 Percent of Average Net Wage, Slovenia, 2005–50
• Figure 21.5 Theoretical Yearly Saving Rate as Share of Net Wage of a Cohort Retiring at a Given Date (at Age 59) to Maintain a Combined Pension of 70 Percent of Average Net Wage, Slovenia, 2005–50
• Table 4.1 Pension Reform in Southeastern European Countries
• Table 6.1 Estimates of Total Balance of the State Pension Fund Using Different Assumptions about Retirement Age and Indexation Level of Pensions, 2010–50
• Table 7.1 Pension Eligibility and Contributing Status, Birth Cohorts 1945–59 (Age 45–60), by Educational Level, Hungary, 2005
• Table 7.2 Expected Relative Entry Pension, Birth Cohorts 1945–59, by Educational Level, Hungary, Average 2005–20
• Table 9.1 Male Labor Force Exit Rates, by Age Group, 21 OECD Countries, 1960s and 1990s
• Table 12.1 Dutch Survey Results: People’s Views on Their Retirement Age
• Table 12.2 Menu of Policy Options
• Table 13.1 Factors Affecting Pension Fund Participation
• Table 13.2 Factors Affecting Pension Savings by Individuals
• Table 14.1 Future Values in Real Terms, Adjusted for Productivity Growth, of Annual (Gross) Pension Savings
• Table 14.2 Monthly Annuity Factors Expressed in Terms of Annual (Gross) Pension Savings, Tax Allowances Required for Targeted (Net) Pension of 700 Euros for Individuals with Different Entrance Timing, and Total Pension Savings at Age 65
• Table 14.3 Impact of a Strategic Asset Allocation on Monthly Annuity Factors Expressed in Terms of Annual (Gross) Pension Savings
• Table 14.4 Impact of a Strategic Asset Allocation on (Net) Monthly Annuity Expressed in Terms of Annual (Gross) Pension Savings of 1,000 Euros
• Table 15.1 Number of Switchers in Pension Funds, Estonia, 2003–06
• Table 15.2 Number of Persons Moving between Different Types of Pension Fund in 2006, Estonia
• Table 15.3 Main Indicators, Estonian Financial Market, 2000–06
• Table 15.4 Debt and Investments of Private Persons, Estonia, 1999–2006
• Table 15.5 Investments in the Tallinn Stock Exchange, by Country, 1996–2006
• Table 16.1 Pension Reform, Latin America
• Table 16.2 Pension Funds in Capital Markets, Latin America
• Table 16.3 Annual Rates of Return to Pension Funds, Latin America, 1997–2006
• Table 16.4 Portfolio Composition of Pension Funds, Latin America, by Issuer and Asset Class, 2006
• Table 16.5 Diversification Rules for Pension Fund Portfolios, Latin America: Limits by Asset Class
• Table 19.1 Labor Market Indicators, Selected Countries
• Table 19.2 Coverage Rate and Type of System, by Country
• Table 19.3 Indicators of Sustainability and Adequacy of Pensions, Selected Countries
• Table 20.1 Main Demographic Characteristics of the Slovenian Population, 1985 to 2008 and Projections to 2050
• Table 20.2 Estimates of Age-Related Public Expenditures in Slovenia
• Table 20.3 Estimations of Potential Growth Rate in Slovenia and the European Union
• Table 20.4 Main Labor Market Indicators, Slovenia
• Table 21.1 Projections of Key Social and Economic Parameters, Slovenia, 2004–50
• Table 23.1 Main Pension System Parameters, Republic of Srpska