Pension Reform and Growth

1. Introduction and Overview Katja Hujo PART I: POLITICAL ECONOMY ISSUES IN PENSION REFORM 2. Pension Privatization and Economic Development in Central-Eastern European Pension Reform Katharina Muller 3. Pension Schemes and Pension Reforms in the Middle East and North Africa Markus Loewe 4. The Reform of the Civil Service Pension Programme in Korea: Changes and Continuity Huck-ju Kwon PART II: PENSION SYSTEM AND REFORM IN THE BRICS 5. Recent History, Perspectives and Challenges to Pension Policy: The Brazilian Case Marcelo Abi-Ramia Caetano 6. Social Security Reform and Economic Development: The Case of India Mukul G. Asher and Azad Singh Bali 7. Towards Universal Coverage: A Macro Analysis of China's Public Pension Reform Lianquan Fang 8. The Private Affairs of Public Sector Pensions in South Africa: Debt, Development and Corporatization Fred Hendricks PART III: BRINGING THE STATE BACK IN 9. Pension Reform in Bolivia: Two Models of Income Security in Old Age Peter Lloyd-Sherlock and Kepa Artaraz 10. Pension Reform in Chile and Argentina: Towards More Inclusive Protection Katja Hujo and Mariana Rulli 11. Conclusions Katja Hujo

Los países de la OCDE comparten una creciente preocupación tanto por la idoneidad de sus sistemas de pensiones como por su capacidad para proporcionar pensiones decentes a los beneficiarios tras su jubilación. La participación de los futuros beneficiarios en la gestión de los fondos, así como en el proceso de reforma, puede servir para mitigar esas preocupaciones, al tiempo que da legitimidad a los sistemas en cuestión. En el presente estudio se analizan las formas de participación en los sistemas de pensiones y las reformas en Chile, España e Israel. Encontramos que existe la participación en diferentes formas y contextos en los tres países. No obstante, en los tres países es necesario aumentar la participación de los futuros beneficiarios en la gestión de los fondos, así como en las reformas de las pensiones.

The paper describes Chile’s pension reform of 1980, which replaced the existing pay-as-you-go public pension programs by a new funded pension program managed by private companies (the AFP´s). It comments on the main results of this reform so far, and identifies the current challenges faced by the country’s pension system. The paper also describes the changes introduced to Chile’s pension system in March 2008 and assesses their potential impact. The Chilean case shows that parametric reforms preceding the creation of a funded program can reduce political resistance to structural pension reform. Chile’s experience also suggests that the consistency of opinions among the economic, social security and labor market authorities responsible of designing and conducting a pension reform process can help to sell the reform to the political authorities. If the decision is to replace an existing pension program by a new one, it also seems necessary to have specific rules that, in some particular circumstances and for a limited period of time, allow discontented workers to go back to their former pension program. Chile’s experience also shows that the quality of pension programs micro design is relevant since individual decisions and portfolio managers investments decisions are shaped by regulations. Results so far suggests that the reform has been successful in improving the long term sustainability of Chile’s pension system; in creating a more fair system; in promoting the development of capital markets; and in removing some distortions to the operation of labor markets. On the other side, there is some room for the new program operational costs and prices to go down, and expectations about an increase in second pillar coverage have not been met. While some regulatory changes could improve the extent and quality of the funded pension program coverage, the long-term solution to the economic problems of retirement involves the labor market. To improve future pensions more jobs in the formal sector of the economy should be created; unemployment must be reduced; and working lives should be extended.

Chile pioneered in Latin America not only the introduction of social security pensions, but the structural reform that privatized them and a process of “re‐reform” implementing key improvements. A Presidential Commission in Chile, appointed in 2014 to evaluate reform progress and remaining problems in the pension system, released its report in September 2015. In light of the Commission's findings, the article assesses Chile's compliance with International Labour Organization social security guiding principles: social dialogue, universal coverage, equal treatment, social solidarity, gender equity, adequacy of benefits, efficiency and affordable administrative cost, social participation in management, state role and supervision, and financial sustainability. The exercise follows three stages: the structural reform (1981–2008), the re‐reform (2008–2015), and the Presidential Commission proposals (2015)

In 2005, Chile's newly-elected president appointed an advisory council to consider pension changes, whose analysis and recommendations are the basis for reforms enacted in 2008. This chapter first describes and assesses the funded individual accounts created in 1981 and reformed over the years, including reforms in 2008. It then discusses the council's reasoning and its central recommendation—the introduction of a universal pension. The next section touches briefly on coverage. Since 1997, China has moved from an enterprise-based system of defined-benefit pensions based on final salary toward a unified system for urban workers with three elements: a defined-benefit, PAYG, first-tier pension (the social pool); a mandatory, funded, defined-contribution pension; and voluntary, enterprise-based pensions. This section describes the pension system in China, and sets out proposals for reform developed by a panel on which we both served. Finally, the basic pension, individual accounts, and issues of coverage are discussed.

Chile privatized its social security system in 1981. Almost immediately, scholars began analyzing the impact of the new system to gauge its effectiveness and they continue to do so to this day. This bibliography collects and describes the most significant scholarly articles, books, and book chapters written in English discussing and analyzing Chile's privatized social security system.

The contemporary global debate about pension reforms is based mainly on the concern for the long-term financial viability of existing government operated pension systems. Against this background, Nigeria, Sweden and Chile responded to the challenges posed by their pension systems by initiating reforms. While Chile and Nigeria completely moved from a defined benefit system to a defined contribution system, Sweden chose a “hybrid”, a model which has received wide acclaim by social security experts. Given the interest pension systems and reforms have generated globally as well as in Nigeria, a cross-country comparative analysis is imperative to bring into sharp focus the specific differences and similarities in these three pension reforms if any. Thus, this study comparatively evaluates the Nigerian, Swedish and Chilean pension reforms as a means of enriching ongoing global debate and crosscountry comparisons on pension reform experiences. Guided by a three dimensional classification framework which describes the options available in reforming a pension system, three core benchmarks were used for this comparative analysis. These are the objective(s) of reform, the model of reform adopted, and the likely outcomes of reform vis-a-vis meeting the redistribution, saving and insurance functions of a pension scheme. Results indicate that the Chilean and Nigerian models are less likely to achieve the redistribution and insurance functions of a pension scheme while the Swedish model is better placed to achieve all the three key functions of a pension system. It is recommended that opportunities for achieving the redistribution and social insurance functions of a pension scheme should be explored in subsequent amendments to the pension legislation. Keywords : Demographic crisis, Pension reform, Public policy

We model a three-pillar pension system and analyse in this context the impact of the financial crisis on the aggregate economy, using an overlapping generations model where individuals live for two periods. The system consists of (1) a PAYG pension system, (2) a Defined Benefit pension fund, and (3) private savings. We show that in this pension system the impact of the financial crisis on the economy is mitigated in case the funded pension funds have invested in more risk averse assets and savings are invested in more risky assets. In order to illustrate the working of the model with respect to the impact of the financial crisis, both in terms of size and development over time, we provide simulation results for the Netherlands. We argue that the lesson from the financial crisis is that pension funds should always invest in relatively risk-free assets, while private savings can be invested in more risky assets.

Latin American experiments with pension reform began when Chile converted its public pay-as-you-go system to a system of private individual accounts in the early 1980s. Several other Latin American countries then followed suit, inspired both by Chile's reforms and by World Bank recommendations stressing compulsory government-mandated individual saving accounts. Individual accounts were subsequently introduced in a number of countries in Europe and Asia. Many are now re-evaluating these privatizations in an effort to ‘reform the reform’ to make these systems more efficient and equitable. This book assesses pension reforms in this new ‘post-privatization’ era. After a discussion on demographic trends in the foreword by Nobel laureate Robert W. Fogel, Section 1 of the book includes chapters on the role of pension system default options, the impact of gender, and a discussion of the World Bank's policies on pension reform. The chapter on the evidence from Chile's new social protection survey points to key lessons from the world's first privatization. Section 2 offers analysis of several significant reform initiatives in the hemisphere, and includes chapters on the United States, Canada, Mexico, Costa Rica, Brazil, Peru, Uruguay, and Argentina.

This paper presents a brief history of pension reform in Chile, the reasons behind the introduction of individual privately managed accounts in 1981, and the adjustments introduced in 2006–2007. The main conclusions are that the system is sound, but the reinforcement of the social protection to low-income–low-contribution workers was a necessary step, given the problems of the formal labour market. This adjustment was also feasible because the transition costs of the 1981 reform are entering the decreasing phase. We emphasise the importance of economic growth for the effective performance of the pension system, reversing one of the traditional arguments for pension reform. Finally, we explore elements that must be taken into account when designing this type of pension reform.

This paper deals with pension reform’s effect on Latvian savings. We are studying the reaction of total savings and their components on change in the fully funded pillar’s share in the total pension system and on increase of the retirement age using overlapping generations model with many generations. The paper describes both the long-term and the short-term theoretical consequences of the changes in pension legislation. Finally, we evaluate the effect of Latvian pension reform on private savings, fully funded savings and government budget balance over the next 10 years. Model’s simulations show that the increase of the retirement age improves budget balance and total savings, while the introduction of the fully funded pensions redistributes the tax payments from the social budget to fully funded savings.

The apparent success of Chile's pension reform catalyzed a number of subsequent reforms sister Latin American nations, and Chilean model' has now captivated the attention of policymakers and researchers OECD as well. In this paper we identify critical elements of old-age pension reform, and examine how these six elements differ across the Chilean reform, and several other Latin nations that followed Chile's footsteps. We emphasize how these other Latin American nations adopted different mechanisms to restructure their old-age pension systems, and we highlight available evidence on system performance in each case.

In the early 1990s, pension reforms leading to substantial changes in the organization and financing of old age security were undertaken in Argentina, Colombia and Peru. Implemented ten years after the pioneer reforms in Chile, they have taken advantage of the experiences and lessons of the Chilean case; at the same time, the second‐generation reforms clearly demonstrate the restrictions policy makers are being faced with in a democratic political context. This paper examines the recent pension reform experiences in Latin America and discusses their implications for a modified concept of old age security.

Through a comparison of three periods of health and pension reform in Chile, this article develops an explanation for the incremental form of social policy change that some Latin American nations have witnessed in recent years, despite the dramatic rise of left governments. It describes “postretrenchment politics,” which constitutes a realignment in the way politics plays out in countries that have undergone social policy retrenchment. In postretrenchment politics, the strengthened position of private business interests, combined with political learning legacies and lock-in effects generated by reforms, results in incremental political change, despite renewed efforts by left parties to address inequality. Global capital also plays an important contextual role, and may influence postretrenchment politics. In postretrenchment politics, newly reformed systems may achieve greater equity, but they do so in fragmented form.

In 2016, nationwide protests in Chile demanded a major reform to the privatized pension system. However, experts saw protesters’ demands as not a viable policy option. In this study, I demonstrate how a group of free-market economists acquired authority as experts in pension policy by gendering their expertise. As a result, they have been able to deny, suppress, and dismiss knowledge on topics and views aligned with citizens’ demands. First, my research shows how experts, through gender relations, create knowledge and ignorance in policymaking processes. Second, I demonstrate how free-market capitalism is legitimated through the hegemony of masculinity.