The World Bank Approach to Pension Reform

Abstract

This paper highlights the World Bank’s thinking and worldwide involvement in pension reform. Both are driven by the Bank’s mandate to help countries develop economically and to reduce poverty. The Bank has four key concerns in working with clients on pension policy: (1) short‐term financing and long‐term financial viability; (2) effects on economic growth; (3) adequacy and other distributive issues; and (4) political risk and sustainability. In response to these concerns and after review of the three main reform options for unfunded systems ‐ mere PAYG reform, a rapid and complete shift to a mandatory funded system, and a gradual shift to a multipillar scheme ‐ the Bank clearly favours the multipillar approach but in a pragmatic and country‐specific manner. When helping to implement a pension reform the Bank fully takes account of country preferences and circumstances, bases its support on sound reform criteria, links the client assistance with knowledge management, provides training and other measures to enhance the reform capacity of a country, and seeks cooperation with other international institutions. In addition, the Bank has a comprehensive research agenda to improve the working of multipillar schemes, and the investigations include issues of coverage, administrative costs and annuities.