Pension reforms in Chile and social security principles, 1981–2015

Over the last 30 years, Latin America has pioneered structural pension reforms. This article focuses on a representative regional sample of seven Central American countries with diverse levels of development (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) studying contributory and tax‐financed pensions as well as recent pension reforms. It comparatively assesses system performance regarding five social security principles: unity; universal coverage; adequacy of benefits; equal treatment, solidarity and gender equality; and financial sustainability. It also evaluates the impact of the world crisis on these pension systems, highlighting the differences between public and private pensions, and extracts lessons and suggests policies for the future.

Between 1981 and 2008, 11 countries in Latin America structurally reformed their defined-benefit, Pay-As-You-Go, public pension systems, partially or totally replacing them with defined contribution, fully funded, privately managed schemes based on individual accounts. Initial failures in design and subsequent performance of the private systems led to partial corrections, but in 2008 two countries implemented far reaching “re-reforms”: Chile maintained and improved its system, whereas Argentina closed and integrated it to the public system. Both re-reform models are evaluated based on their fulfilment of International Labour Organization social security principles: universal coverage, equal treatment, social solidarity, gender equality, benefit sufficiency, public supervision, reasonable administrative costs, social participation and financial sustainability. The Chilean model has improved the system in most of such principles while the Argentinian model has not. The potential influence of both models in the region is briefly explored.

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

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.

The aim of this article is to define the Japanese, South Korean and Lithuanian latest pension system reforms and measures during economic crisis. Problems of the Japanese, S. Korean and Lithuanian pension systems are similar to the others industrial Asian or European Union countries: ageing, impact of economic crisis and pension system budget deficit. Moreover, the Japanese, S. Korean and Lithuanian population ageing rapidly (low birth rate, longer life expectancy) and it influences the entire society and requires more complex and pressing pension systems reforms. All countries of the world fighting against the ageing and searching for the pension system financial sustainability. After the universal pension system reform in 1985, the task of Japanese government is to ensure for each participant an adequate and regular pension income, to implement the social justice and solidarity. Pension system reforms in S. Korea began intensively only since 1997 and this was associated with a global currency crisis. Since the end of the last century until 2009, S. Korean government has developed a modern social security and social assistance systems. The government is constantly increasing social security coverage and benefits (from 1999 to 2009, social benefits increased almost four times). However, the social security coverage is still insufficient, income disparities increasing and the financial disbalances require to reform the pension system for a long-term perspective. The pension system reform of 2003 and 2011 raised the wide discussion on the state social pension insurance system future development of Lithuania. This reform clearly demonstrates that the government in 2003 opted for a liberal position and in 2011 – it was decided to strengthen state social insurance guarantees. KEY WORDS: pension system, reform, crisis, ageing, Japan, S. Korea, Lithuania.

The United Nations Universal Declaration of Human Rights of 1948 asserts that social security is an inalienable human right. Realizing this human right is often considered, simply, as a matter of political will and of administrative aptitude. In these terms, the progressive realization of the human right to social security may be viewed as the outcome of an appropriately‐resourced political and bureaucratic process. Such a perspective, however, is clearly inadequate. Characteristically, bureaucracies are designed to cater to the needs of all, based on common procedures and common deliverables designed for the “typical” case. Yet such approaches often lack the necessary flexibility and resources to make a distinction between individuals, which acknowledge their respective differences and needs. To meet the international commitment to progressively realize universal social security coverage, social security administrations are key actors. However imperative this role may be, if the pursuit of this commitment fails to respect people's differences this will put at risk the meeting in full of what is envisioned by the human right to social security. To this end, this special issue aims to foster an understanding that the goal of universal coverage must necessarily also respect and respond to the individual needs of each and every person.

Nowadays, when faced with aging societies, family structure changes, labour market transformations, non-standard employment arrangements, shadow economy, financial and economic crisis, many are worried about the two basic issues: pension systems’ financial sustainability and benefit adequacy (both short-term and long-term). Therefore, almost all countries in the world made some changes to their pension systems. The situation is even more aggravated in countries with high budget and pension system’s deficits, unfavourable dependency ratios, long-term negative natural increase rates, low employment and high unemployment rates. Unfortunately, Croatia suffers from all these problems. Therefore Croatian pension system has undergone many reforms: one systemic reform (from 1998 to 2002 which resulted in the establishment of the three-pillar pension system), and several parametric reforms, the last one encompassing all three parts of the pension system (2013-2015). The purpose of the paper is to provide legal analyses of this last parametric reform in the light of sustainability and adequacy concerns with some inevitable reminders of the previous reform solutions. The author reveals many inconsistencies and lack of prudence in legislator’s approach, which in the long-term potentially endangers both the financial sustainability and benefit adequacy. Moreover, numerous and frequent legislative changes coupled with the existence of many groups of privileged pensioners raise further concerns regarding predictability, stability, efficiency and fairness of the pension system as well as trust in the national government. Furthermore, the author warns that only part of the solutions lies within the pension system itself (through more thoughtful adjustments). Those changes should be complemented by other strategies outside the pension policy (e.g. within the health care system, tax system and labour market regulations).

Recasting Pensions in Europe: Policy Challenges and Political Strategies to Pass Reforms

The authors review the qualitative macroeconomic and welfare implications of replacing a pay-as-you-go pension system with a fully funded scheme. They summarize the typically small effects found in the simulations literature, based on exogenous-growth one-sector models. Much larger, and sustained, effects are obtained in the framework of an overlapping-generations model with endogenous growth and formal-informal production sectors - the model presented in this paper. Model simulations using the overlapping-generations model suggest that replacing a pay-as-you-go system with a fully funded system could substantially raise long-term growth rates by eliminating the incentives (under the pay-as-you-go system) to informalize production and employment. A final look at Chile's reform experience suggest that a structural transformation toward formalization is taking place and that both private savings and growth have been rising substantially since 1980. Econometric evidence suggests that Chile's pension reform, in 1981, could be contributing toward Chile's large increase in private savings.

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.

Social security pensions have two major requirements for satisfying the sincere desire of the public. One is financial sustainability, and the other is the adequacy of benefits. As the population aging went on, financial sustainability became more serious in almost all countries. A long list of policy options to ensure financial sustainability has been demonstrated globally. They are usually painstaking with tears and quite unpopular to the public. Nevertheless, many developed countries have already managed to implement these policy measures. The other requirement, adequacy, is desired for the elderly to maintain a decent living standard after retirement. If any pension system fails to meet this requirement, it will be politically unsustainable. Financial sustainability often violates the adequacy requirement. However, both requirements will not always be compatible with each other. Sophisticated balances between them are necessary for pension policymaking. This study first gives an overview of making social security pension systems financially sustainable. Ample experiences in developed countries are illustrated. Before going into discussions, fundamental characteristics of social security pensions and a need for periodic actuarial evaluations are mentioned. Then, it demonstrates the basic contents of pension adequacy from an economic perspective, explaining various relationships to poverty alleviation.

In 1998, Hungary started a pension reform, which involved partial privatisation of the system and partial introduction of the fully funded (FF) scheme. The reform aimed to improve the financial sustainability, the incentive structure, and the transparency of the system. It also aimed to achieve the system's fairness by separating the principles of“social solidarity”and“social insurance”.But, after the FIDESZ-led government came to power, the pension reform was not carried out as scheduled. The FIDESZ-led government made some institutional changes that partially reversed the 1998-reform.This article examines the original reform plan and institutional changes under the FIDESZ-led government from three viewpoints: 1) financial sustainability of the pension system; 2) incentive structure and the system's transparency; and 3) the system's fairness. We also evaluate pension reforms carried out since mid-1990s in relation to the processes of system transformation and EU accession.By investigating institutional changes in detail, we show the 1998 pension reform was inadequate to its three purposes mentioned above, because it incorporated measures softening the shocks expected from the original reform plan. Although there is no doubt that the 1998 pension reform was a drastic one, actors had to make numerous compromises during in the agreement formation process and the legislation process. Consequently, the system maintained a larger scale of redistribution than originally proposed by the Ministry of Finance, the Ministry of Welfare and the PIF (Pension Insurance Fund) self-government.We also show that the changes made by the FIDESZ-led government resulted not from differences in thinking about pension systems but from populist politics that was imposed heavier burden on both contributors and pensioners.We conclude by pointing out there are many unsolved problems, opacities and uncertainties regarding the future course of Hungary's pension system reform.

Natia Kakhniashvili E-mail: Natia.kakhniashvili@tsu.ge Doctor of Business Administration Iv. Javakhishvili Tbilisi State University Tbilisi, Georgia https://orcid.org/0009-0004-0759-198X Khatuna Barbakadze E-mail: Khatuna.barbakadze@tsu.ge Candidate of Economic Sciences Iv. Javakhishvili Tbilisi State University Tbilisi, Georgia https://orcid.org/0009-0001-1670-8463 Nato Kakashvili E-mail: Nato.kakashvili@tsu.ge Candidate of Economic Sciences Iv. Javakhishvili Tbilisi State University Tbilisi, Georgia https://orcid.org/0009-0005-1399-1784 Abstract. Pension policy is a critical component of a state's social policy. Current global trends, particularly those associated with population aging, have heightened the need for effective pension system reforms. The stability and efficiency of pension systems are vital elements of a society's social welfare infrastructure, ensuring financial support for retirees and promoting their well-being in old age. However, pension systems face significant challenges due to demographic shifts, economic fluctuations, and evolving societal expectations. Traditional pension systems often struggle to fully meet the needs of retirees, and many existing schemes experience substantial volatility, jeopardizing their long-term sustainability. As a result, the need for pension system reform has become increasingly urgent. To address these challenges, states must implement more comprehensive reforms aimed at effectively modernizing their pension systems. Pension reform refers to the process by which a government or employer makes substantial changes to the structure, policies, and regulations governing pension benefits. Successful reforms typically require thorough analysis, consultation with stakeholders, and legislative action to ensure effective implementation. The pension system of Georgia has undergone several important stages of reform in recent decades. After gaining independence, the country implemented socio-economic transformations, which were accompanied by demographic aging and shifts in labor market dynamics. These changes underscored the need for reforms in the pension system. The pension system faces several significant challenges. Foremost among these is the demographic trend of an aging population coupled with a declining birth rate, which poses a serious threat to the long-term sustainability of the system. Additionally, the expanding informal labor market and high unemployment levels further complicate the situation, creating obstacles that could undermine the stability of pension benefits for future retirees. Addressing these fiscal challenges requires the implementation of innovative policies that ensure adequate retirement income for citizens while maintaining the system's viability. The reform of the pension system requires the joint participation of the government and society. The government should strengthen supervision and management, create an effective management and supervision mechanism of the pension system. Pension system reform is complex. Different countries have different levels of economic development, demographic structure, social security system, etc. Key words: pension system, reform, efficiency, risks, modernization. JEL classification: H 55, J1

Abstract. Background: Welfare benefit policies have important implications for public health. They aim to reduce the risk of poverty, promote employment for people who can work, and help maintain the livelihood of people who are not able to work due to unemployment, disability or old age. They may help reduce the economic and health consequences of recessions, however the 2008 recession and subsequent rise in government debt has also led to welfare reforms that reduce access to and adequacy of welfare benefits. This thesis uses the recent recession and subsequent welfare reforms in the UK as natural experiments to investigate the relationship between recession, welfare benefit policies and mental health. Study design: I use routine administrative and survey data for England and systematic review methods to investigate the impact of the recession on mental health and the impact of welfare benefit reforms on mental health and employment. Study 1 reflects on the methodological challenges of investigating natural policy experiments such as those outlined in this thesis. Study 2 investigates the impact of initial rises in unemployment during the recession on suicides, Study 3 investigates trends in self-reported mental health problems during and after the recession when welfare reforms were introduced. Study 4 investigates the mental health effects of a specific policy introduced from 2010 to use a new tougher assessment to reassess the eligibility of disability benefit claimants. Study 5 presents a systematic review of international evidence investigating the employment effects of changes to the eligibility and adequacy of out-of-work disability benefits. Study 6 investigates the employment effects of the disability benefit reassessment policy in England. Results: The onset of the 2008 recession in England and subsequent rise in unemployment was associated with a rise in suicides. The association between increases in unemployment and rises in suicides was stronger in the 2008 recession than it had been in the previous 1990s recession, suggesting that welfare policies may have been less effective at reducing the mental health impact of unemployment. The trend in suicides however continued to increase between 2010 and 2013 even after unemployment peaked and began to decline. The prevalence of reported mental health problems also increased from 2009. Whilst unemployment trends explained some of the initial increase in reported mental health problems, it did not explain the continued increase and widening of inequalities from 2010 to 2013. The policy introduced in 2010 to reassess the eligibility of disability benefit claimants was associated with adverse trends in mental health, including a further rise in suicides, self reported mental health problems and antidepressant prescribing. A systematic review of international evidence indicated that similar policies did not generally increase employment, but rather moved people from disability benefits onto other benefits. The disability benefit reassessment policy introduced in 2010 appears to have moved people with mental health problems from inactivity into unemployment, but there was no evidence that it had improved the employment chances of people out-of-work with mental or physical health problems. Conclusion: It is likely the 2008 recession had an adverse impact on mental health. This may have been greater than it would otherwise have been because of changes to the welfare system over recent decades. Welfare benefit reforms since the recession have then potentially exacerbated this situation, and may have led to further adverse trends in mental health that particularly affected the most disadvantaged groups. These welfare policies have not led to improved employment chances for people out-of-work with health problems, suggesting that the harms may outweigh any benefits. These policies have been associated with an increase in the numbers of people out-of-work with mental health problems potentially leading to greater reliance on welfare in the future.

The level of pension provision of the population is a guarantee of social security of the person