PROBLEMS AND PERSPECTIVES IN PENSION SYSTEM: CASE OF BALTIC STATES

In all states of European Union reforms in pension system are being made, likewise in Latvia. Demographic and economic problems that are occurred forces pension reforms to be made. New developed pension reform includes different processes, like – formation of financial equilibrium between incomes and costs, limit performance in going early in pension, increasing of age of going in pension, rebalancing between men and women. Simultaneous formation of state and private pension systems could prevent some of the major drawback in system of pension that undermines the pension system of nowadays. Unfortunately the high social security contributions of state sector persons lacks of money, for deposit in private pension funds. Using method of logic synthesis, as the target authors nominated to examine problems of pension systems in the Baltic States, as well as similarities and divergences in problems and perspectives, with the status of private pension funds in accumulating pension system.

Šiame straipsnyje analizuojama prieš penkerius metus pradėta Lietuvos socialinio draudimo senatvės pensijų struktūrinė reforma, kurios metu dalis socialinio draudimo įmokų pervedama į gyventojų pasirinktus privačius pensijų fondus. Šio straipsnio tikslas - apžvelgti reformos pradžioje jai keltus tikslus, įvertinti jų pagrįstumą socialinės apsaugos ekonomikos teorijos požiūriu, išanalizuoti pradinius pensijų reformos rezultatus. Siekiant šio tikslo išanalizuotas pensijų reformų regione pobūdis, socialinio draudimo pensijų dalinio privatizavimo Lietuvoje ypatybės, kelti privatizavimo tikslai ir besiformuojanti privačių pensijų rinką Lietuvoje. Straipsnyje remiamasi pasaulyje gerai žinomų pensijų ekonomikos tyrėjų publikacijomis, pensijų reformą reglamentuojančiais Lietuvos Respublikos įstatymais, Lietuvos valstybės institucijų skelbiama ekonomine ir socialine statistika.Autoriaus atlikta analizė rodo, kad privačių pensijų fondų klientų asmeninėse kaupiamosiose pensijų sąskaitose kaupiamo turto investicijų grąža nepadengia nuostolių, kuriuos jie patirs dėl dalinio pasitraukimo iš socialinio draudimo pensijų sistemos. Straipsnyje taip pat parodyta minėtos pensijų reformos našta, kuri tenka dabartiniams pensininkams. Pagrindinė straipsnio išvada - reformos tikslai buvo per daug ideologizuoti, o pirminiai rezultatai nepalankūs nei dabartiniams, nei būsimiems pensininkams. Lietuvoje 2004 metais įvykdytos pensijų reformos analizė akademinėje literatūroje pateikiama pirmą kartą.

The main objective of the improvements to public pension systems is to create a balanced three-pillar pension structure and increase public accountability for pension capital formation. Most pension systems are based on the first two pension system pillars – mandatory contributions in the state compulsory unfunded pension scheme and the state-funded or accumulated pension scheme in pension funds. However, the pension level adequacy has been reached by adding the third pension system pillar - voluntary investments in private pension funds. Governments are private pension system policymakers by defining a legal framework and providing tax incentives for voluntary investments for retirement. In the Baltic countries – Estonia, Latvia, and Lithuania, the third pension pillar is at an early stage of its development, and as such, should be particularly stimulated. This research focuses on the tax incentives utilized by the governments of Estonia, Latvia, and Lithuania and aims to ascertain and compare the effectiveness of the tax incentive policies applied to the third pension pillar by the governments of the three Baltic countries. It questions the effectiveness of the incentive mechanisms the governments of the Baltic countries have chosen, which include involving most of the population in the private pension saving programs. The research methods used are the analysis of scientific publications on the previously conducted research, acts of legislation of Baltic countries, as well as an analytical study of statistical data on the development of voluntary pension fund contributions in Estonia, Latvia, and Lithuania. The research results indicate that the tax incentives are the mechanism to motivate the population to create savings in the third pension pillar in all three Baltic countries. However, Latvia being the country with the highest coverage rate of the third pension pillar has the most unfavorable conditions for creating savings. There are no tax incentives on returns on investment and tax-exempt withdrawals in Latvia, while Estonia and Lithuania have all positions tax-exempt. A more detailed analysis of the tax incentives at the contribution stage explains the underdeveloped third pension pillar in Lithuania, as Lithuanian personal income tax reliefs are targeted at low or medium wages or gross income. The research has highlighted the impact of tax incentives on voluntary savings for retirement in the three Baltic countries, opening a discussion about the effectiveness of governments' applied mechanisms.

The article considers topical issues of determining the current state of development of the private pension system in Ukraine, and defines the concept of "private pension fund". In economic essence, the system of non-state pension fund is defined as an integral part of the system of accumulative pension provision, based on voluntary participation of individuals and legal entities in the formation of pension savings in order to receive additional pension contributions. Problems that hinder the development of private pension funds, namely the shadowing of wages and labor relations, lack of public awareness, lack of legislation are identified. The functioning of private pension funds in the country depends not only on reforming the existing pension system, but also on the growth of incomes, their de-shadowing and development of the financial market in general. The current pension system is not able to provide the population with the necessary pension assets. This problem can be solved by intensifying the activities of private pension funds. Emphasis is placed on the need and importance of a voluntary private pension system and its role in ensuring the development of the state economy. As world experience shows, in a market economy, the development of private pension funds is one of the important components to ensure effective functioning of the state. Private pension funds are powerful investment investors because they can mobilize additional investment resources. The main purpose of investing pension assets is to preserve the savings of the population. The main indicators of activity of non-state pension funds are analyzed, namely: pension contributions, pension payments, the number of concluded pension contracts, the amount of investment income, etc. Further trends in the development of private pension provision in Ukraine are noted, substantiated the necessary measures to intensify activities in modern economic conditions, proposed recommendations for solving existing problems of institutions. However, in implementing the proposed measures should be remembered participation of both individuals and legal entities.

This paper studies the appropriateness of a public or private orientation of pension systems in the light of the recent financial crisis, which has underscored the difficulties and contradictions associated with each system. The different institutional arrangements, in which public or private pension systems are embedded, are key components when assessing their responses to the crisis. Particularly, private pension systems are intertwined with financial markets, while social insurance-based pension systems are linked to the labour market mechanisms. This paper compares the British and French pension systems, as “archetypes” of private-oriented and public-oriented systems, respectively, the first relying on the market and private pension schemes, and the second on mandatory social insurance. This paper shows that the crisis has upheld the founding principles of the public (French) and private (British) pension systems to maintain the existing institutional configurations. At the same time, both systems have strengthened the role played by means-tested benefits and minimum pensions for low-income groups to offset the weaknesses of one or the other system, as emphasised by the crisis.

Abstract. Introduction. With the constant growth of the deficit in the financing of pension benefits and the real threat of the state's inability to guarantee pensions, the role of the private pension system is growing. The burden on the state pension system leads to an increase in the financial burden for individuals and legal entities, due to increased contributions to the state Pension Fund, which leads to a decrease in the amount of financial resources for the development of its activities. Purpose. The purpose of the article is to analyze the activities of private pension funds in the current socio-economic development of the country.Results. The effective functioning of the national economy depends on the level of financial security of various economic entities. With the help of mobilization of their funds there is an active distribution and redistribution of financial resources between different sectors of the economy. A developed system of financial institutions is needed to develop the process of accumulation of free money. They are the ones who transfer capital from those who have savings and those who need it. Among many types of financial institutions, private pension funds deserve considerable attention. Given the practical absence of a funded system of compulsory state pension insurance, as well as the insufficient level of funding for the solidarity system, they contribute to improving the economic well-being of the population. By concluding an agreement with the NPF, each citizen can determine the amount of future additional non-state pension benefits. Thus, without the effective functioning of the third level of the pension system, the financial security of the population in old age will be minimal, which will reduce the economic development of Ukraine as a whole. Conclusions. For the effective functioning of the NPF network in Ukraine it is necessary: - ensure transparency of NPF activities and increase protection of the rights of their participants; - to establish a fund for guaranteeing pension contributions of participants, which would return part of such contributions in case of bankruptcy of the selected NPF. This would increase public confidence in these financial institutions; - to improve and modernize the regulatory framework related to NPF risk management; - take measures to improve the financial literacy of the population and increase public interest in participating in the private pension system; - reduce the taxation of payments to NPF participants when they reach retirement age; - provide tax benefits for legal entities - founders of NPFs, with a significant number of participants; - to ensure the development of the financial market in Ukraine, which will expand the range of financial instruments in which NPFs can invest.

Part 1 Introduction - actors, paradigms, and pensions: pensions as efficient contracts - the neoclassical perspective pensions as worker control devices - the Marxist perspective pensions as social institutions - the institutionalist perspective pension policy issues. Part 2 The pension idea: who should provide retirement income - government or business? who got to retire? types of government schemes what employers want from pensions intitial employer pension goals characteristics of the early employer pensions outcomes and contradictions - the new private pension system. Part 3 Social insurance with a union label: unions, pensions, and segmented labour markets union influence on pension coverage outcomes and contradictions - pension bargaining without conflict. Part 4 The employer pension system - distribution and moral hazard: pensions and moral hazard external factors - distribution of pension plan coverage and benefits internal factors - how do pensions affect workers within a plan? a theory about the pension contract portable pensions, SEPs, and distributional equity outcomes and contradictions - toward a mandatory pension system. Part 5 Corporate uses of pension funds: pension contracts and firm default government and the corporate use of pension plans outcomes and contradictions - challenges to corporate use. Part 6 Pension funds and financial democracy: economic power labor's acess to pension fund management competition for the control of capitl prospects for worker capitalism outcomes and contradictions - ownership and strategies. Part 7 What makes a good private pension system?: requirements for an optimum pension system is the pension system consistent with government goals? federal pension law - 1920-1989 most of the costs and some of the benefits of private pensions outcomes and contradictions - the costs of volunteerism. Part 8 Directions for private pension reform: outlook for employer pension policies in the 1990s the likely direction of government policies democratizing the social security trust fund resolving the private pension contradictions.

Management of pension schemes has always been a difficult task for governments and the challenges that governments are facing today are growing faster than many countries anticipated. Pension plans have evolved overtime as public and private sector schemes slowly switching to PAYG system of funding and the uncertainty over current contributors’ future is growing. However, the recent financial crisis turned attention towards this hidden deficit of the countries where pension funds around the world lost significant amount of their value and the mounting pressure forced the policy makers to take actions to address this issue which they did by suspending and scaling down pension privatisation which once was proposed by World Bank and supported by countries around the world specially in Eastern Europe to answer the funding problems of pension plans. Recent studies such as Drahokoupil and Domonkos (2013) and Orenstein (2014) among others have analysed the impact of financial crisis on pension funds and the role played by private pensions during that period but were unable to find any significant differences between public and private pensions in terms of returns and risks. These studies raise questions on the rationale behind the recent reforms that not only significantly reduced the funding through private pension plans but the initiatives such as UK government allowing pensioners to take their pension savings as single cash payment instead of buying annuity does not seem like a insightful step that can minimize the pension deficit but will result in extra cash burden on treasury (Flood, 2014). Many European countries such as Hungary, Latvia and Poland completely abolished private pensions as a response to resolve the problem of pension deficit. However, on comparing the portfolios of public and private pensions during the period of financial crash, analysts found that both were holding risky assets and due to the market turmoil, the fund lost their value but question of why only private pension funds were penalized is still far from answered that can make economic and financial reasoning. Resulting reforms imposes constraints and stringent requirement for pension funds where regulators in US and Europe have made attempts to prevent the use of financial derivatives to hedge the portfolio risk. The case for these regulations in reducing risk is debatable while some supported, other criticised as it leads to increased costs and impedes fund growth. These also resulting in misalignment of interests as assets managers are forced to focus on short-term volatility rather than sustainable returns (Randle and Rudolph, 2014). There are many reasons that have created this enormous pension deficit such as political, social, demographical, economic and financial. But some risk can be managed easily than others, as most of the literature focuses on the impact of political and social policies on pension plans, the discussion in this paper is on financial aspect of the problem and attempts to find solutions to manage the pension risks through financial markets. While many governments such as Detroit city sunk down the pension deficit abyss and defaulted on their obligations, Norwegian pension fund and Australian superannuation fund have emerged as ideal models that can be followed by countries facing pension crisis as the longer they take to react the deeper they sunk in to the deficit hole. The aim of this discussion is to: 1) gain insights into the underfunding problem of pension funds and the impact of financial crisis on pension liabilities and how it has amplified the pension risks and liabilities, with underfunding and risk mitigation as focal point. 2) Critically discuss post crisis pension reforms and how they are likely to resolve the problems. The focus will be on risks associated with private and public pension plans. 3) While regulatory law is not the main focus of this discussion but there are some regulations that directly impact the financial performance of the pension funds such as imposing constraints on investment of funds. Therefore the discussion follows the extent to which fed should intervene, and attention will also be drawn on inconsistent and biased regulations. 4) For sustainable pension plans strategies, Australian superannuation and Norway’s pension funds have been discussed in detail including their investment strategies, risk management techniques and supervision in order to find solutions that can be used by other countries such as US and UK.

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

The article is devoted to actual issues of public finance – old-age income support and social security in the twenty-first century. For this reason, government has tried to guarantee old-age’s pension eligibility. In our country pension system is presented with three-level pension system, which join mandatory and voluntary components – solidary system (first level), compulsory accumulation system (not exist now) and private pension system. According to Ukrainian’s pension model, basic and minimum pensions are funded by solidary system or PAYG (“Pay-As-You-Go”) system. As the results, maintains of sufficient financial resources of Pension fund’s budget is very important for financial stability of pension system. The authors show the relationship between sufficient financial support for the elderly in Ukraine and the financial capacity of the solidarity pension system. It was found that in order to form a financially stability pension system, it is necessary to ensure a sufficient amount of own pension fund revenues and avoiding deficit of the Pension Fund’s budget. So, the main indicators of current PAYG system in Ukraine include the public pension expenditures and deficit of the Pension Fund. The article presents dynamics of revenues to the Pension Fund of Ukraine and structure of own pension fund revenues and allocations from the government budged. According to author’s research, the main source of revenue collection of the Pension fund’s budget in Ukraine is the budget’s transfers. О. Чеберяко, В. Бикова ISSN 2078-5860 ФОРМУВАННЯ РИНКОВОЇ ЕКОНОМІКИ В УКРАЇНІ. 2019. Вип. 41 480 The budget expenditures in the structure of income of the pension fund are also analyzed. The total amount of the government budget expenditures that are directed to financing the pension fund are about twenty percent. In our opinion, the key reasons of the “lack of own income” are the shadowing of the economy, the macroeconomic situation, the low minimum wage, the existence of a limit on the maximum amount of wages, which accrues percent of social contribution. As a conclusion, the authors suggest measures for solving the issue of “lack of own income” of the Pension Fund of Ukraine – rising the retirement age, labor market’s reforming, increasing insurance fees and implement compulsory accumulation system. The analytical materials and conclusions can be useful for following researches of finding solutions for achieving the financial stable Pay-You-Go system. Key words: pension system, The Pension fund, social insurance payments, deficit of The Pension fund, government budget.

Анотація. Метою статті є ґрунтовний аналіз сучасного стану ринку недержавного пенсійного страхування України, характеристика основних підходів біхевіористичної теорії фінансів і пропозиції щодо їх використання у вітчизняній практиці. Розвиток національної пенсійної системи є можливим лише за умови залучення широкого кола громадян до участі в діяльності НПФ, які в багатьох країнах є основою пенсійних систем. Безперечно, обсяги залучення НПФ як третього рівня пенсійної системи України є значно меншими, ніж у зарубіжних країнах, проте можна стверджувати, що останні роки стали для НПФ одними з найбільш продуктивних і результативних, а це означає, що існує розуміння, в якому напрямі можлива розбудова системи приватних пенсій, а отже, обсягу залучення приватних осіб до ще більшого забезпечення їх при досягненні пенсійного віку. На думку вчених, доцільно застосувати для цього підходи, які ґрунтуються на використанні біхевіористичної теорії фінансів, котра набула своєї особливої активізації після глобальної фінансової кризи. В останні роки вчені, що працюють у сфері біхевіористичної теорії фінансів, виявили, що хоча люди намагаються максимізувати своє особисте благополуччя, існують певні фактори, які значно обмежують їхній вибір. Визнання існувань цих обмежень суттєво змінило розуміння сучасної науки про процес ухвалення окремих економічних і фінансових рішень, особливо тих, що стосуються довгострокового споживання і заощаджень, зокрема таких, як акумуляція і декумуляція активів у пенсійних схемах. Таким чином, такі особливості поведінки людини успішно використовуються у світі при розробленні пенсійних програм, для посилення довгострокових пенсійних заощаджень. У статті свого розвитку дістали науково-методичні підходи щодо підвищення мотивації громадян до пенсійних заощаджень у недержавних пенсійних фондах на основі біхевіористичної теорії фінансів, що, у свою чергу, дозволяє обґрунтувати ефективні програми розвитку третього рівня пенсійної системи України. Результатом проведеного аналізу сучасного стану ринку недержавного пенсійного страхування України має стати розуміння того, що за сучасних економічних умов головні зусилля уряду щодо подальшого реформування вітчизняної пенсійної системи мають бути зосереджені на підтримці третього рівня, основу якого в Україні становлять недержавні пенсійні фонди (НПФ), що діють за пенсійними схемами з визначеними внесками. Головна перевага участі недержавних пенсійних фондів у системі пенсійного забезпечення полягає в тому, що вони дозволяють розподілити між трьома її складовими ризики, пов’язані зі змінами в демографічній ситуації (до яких найбільш чутливою є солідарна система) і з коливаннями в економіці й на ринку капіталів (що найбільшим чином впливає на накопичувальну систему). Такий розподіл ризиків дозволяє зробити пенсійну систему більш фінансово збалансованою і стійкою, що є обов’язковою умовою для ефективного її функціонування усієї системи соціального страхування України. Ключові слова: недержавні пенсійні фонди, пенсійні нагромадження, біхевіористична теорія фінансів, акумуляція активів, декумуляція активів. Формул: 0; рис.: 0; табл.: 1; бібл.: 12.

This article briefly explains the main features of public and private pension systems, as well as structural and parametric pension reforms. Its core compares performance, within Latin America, between private pension systems in ten countries and public pension systems in eight countries, based on nine indicators: labor force coverage, ages of retirement and pension levels, gender equality, administrative costs, wage contributions, compliance, portfolio diversification in investment of pension funds, rates of returns of investment, and financial equilibrium. Contrary to what is often maintained, the article concludes that public systems perform better than private ones in most of those indicators.

The article focuses on the reform of the pension systems in North Macedonia and Russia, which resulted in switch from one-pillar to multi-pillar pension systems, and current legal and institutional architecture in both legal systems with emphasis on private pension funds which are widely recognized as the core drivers for the improvement of the living standards of retirees. The article starts with the general overview of Macedonian and Russian pension systems which provides the necessary background for understanding of the legal regime of private pension funds. The general overview of the pension systems is followed by the detailed analysis of the legal status of private pension funds in both countries, with more attention being paid to the experience of North Macedonia where private pension funds play a more important role in the pension system. In Russia private pension funds have shown their positive effect, but their coverage in general is still moderate. The overview of general rules of taxation of contributions to private pension funds and pensions concludes the article. The comparative research allowed to make the conclusion that both countries have made different progress in moving to a three-pillar pension system especially from the viewpoint of the established legal and institutional framework, and the establishment and operation of the private funds, both mandatory and voluntary.

In this article, the authors review pension fund investment returns in Chile, Peru, and Mexico with a long term perspective. They first analyze the historical returns of the private pension systems in these three countries, recorded most of the time only in one type of fund or portfolio. They then run Monte Carlo simulations to gain a glimpse into the future and evaluate potential returns from the new multi-fund schemes adopted by private pension systems, which are intended to allow investing in a number of regulated financial portfolios that vary according to different risk preferences and pension-saver age. The historical analyses finds that the financial crisis had a major effect on private pension funds—these funds experienced sharp drops in returns, particularly those with the highest proportions of equities. These effects were transient, however, and currently the historical returns of pension funds remain at positive levels, making them among the savings alternatives with the best returns in their respective countries. In this regard, private pension funds, with their diversified investment portfolios and provision of liquidity for different markets, companies, and productive projects, have proven to be a significant stabilizing factor for economies. Looking into the future with their simulations, the authors find that the multi-fund scheme has the potential to continue to offer attractive returns on average for pension-savers in the three countries. However, the authors warn that pension levels and replacement rates in the long term do not depend simply on returns, but rather densities of contribution and contribution rates are key factors, particularly for the countries analyzed. Indeed, the densities of contribution and contribution rates are perhaps the most important variables for increasing pension well-being in that they are not random in nature and therefore may be affected by public policies.

The subject of the article is theoretical and applied principles of accounting support of pension provision in Ukraine. The purpose of the publication is the formation of theoretical and methodological and applied aspects of accounting and tax support of pensions in Ukraine. In the course of the research such methods were used as: systematization and generalization, retrospective analysis of the state of pension provision. The main aspects of providing pension insurance in Ukraine are considered. The issue of essential characteristics and structure of the pension system in accordance with the Law of Ukraine "On Compulsory State Pension Insurance" was updated. The main problems of the current state of pension provision have been identified, namely: imbalance of the Pension Fund budget revenues with its expenditures, which leads to a constant deficit of funds in it; a sharp increase, as a result of the 2011 pension reform, retirement age and length of service; rapid growth of the ratio between citizens of working and working age; a fairly high percentage of payment of cash contributions to the pension fund; low level of pension benefits, sometimes less than the subsistence level; underdeveloped system of private pension provision and ignorance of Ukrainian citizens with the pension system. The main aspects of pension reform in Ukraine are presented and the main principles that will help to improve the situation are highlighted. These include, in particular, such as: recalculation of pensions using modern indicators of the salary base; strengthening the requirements for insurance experience. The research of scientific works revealed the types of private pension funds, the expediency and efficiency of their activities, systematized the benefits of creating enterprises to ensure future costs and payments. The article examines the peculiarities of creating preferential pensions at the enterprise, outlines the main aspects of accounting for pensions, taxation of contributions to private pension funds, summarizes the impact of costs incurred in creating the provision of pension benefits for income tax.