Understanding the effect of market risks on new pension system and government responsibility

China’s population is ageing quickly, and its current pension system is facing many significant challenges and institutional drawbacks caused by the failure of the system to clearly define government, corporate and individual responsibilities. At the core of China’s pension reform is the three-pillar design with Chinese characteristics: basic public pension based on the social pooling account (pillar 1); the occupational pension system consisting of financing deficit in the individual account by transferred state-owned assets, enterprise annuities and occupational annuities (pillar 2); and voluntarily contributed pension plans based on personal choice (pillar 3), supported by tax concessions. The government has overall responsibility for system establishment, service management and funding of Pillar I, and plays a regulatory role in system establishment and operation of the 2nd and 3rd pillar.

As their populations grow older, the industrial countries face steep increases in public pension costs. If countries change their pension systems in advance of sharply higher pension costs, it is possible to prepare for the added retirement costs by funding a portion of the future liabilities through increased saving. By boosting capital formation and economic growth, higher saving has the potential to increase the incomes - and the welfare - of future workers and retirees.This paper considers investment accumulation and pension adequacy in light of financial market risk. We examine two alternative reforms of the U.S. pension system that are aimed at pre-funding part of future pension liabilities and increasing national saving. The first policy expands the role of advance funding in the existing Social Security system by moving toward a policy of tax increases that are large enough to maintain close actuarial balance over a 75-year horizon. Under the alternative policy, the traditional Social Security program adopts pay-as-you-go financing after 2033 and a new system of individual investment accounts is adopted to supplement (reduced) pensions under the traditional system. Advance funding takes place in the new individual investment account system.

Public attitudes towards welfare have long been central to welfare state theory. This study examines the evolving public perceptions regarding the allocation of eldercare responsibilities between the state and family in China. Using data from the Chinese General Social Survey spanning 2010–2021, we analyze age, period, and birth cohort effects on public attitudes towards eldercare. Our findings indicate that as individuals age, there is a growing preference for government responsibility in eldercare, highlighting the role of self-interest in shaping welfare attitudes. Notably, attitudinal shifts across birth cohorts deviate from the modernization hypothesis, revealing a tendency among those born in the 1970s and 1980s to view eldercare as a family obligation. Over the last decade, public attitudes towards eldercare have oscillated from an initial embrace of modern perspectives to a return to traditional views, potentially due to demographic pressures on the pension system. This study not only fills empirical gaps in the field but also carries significant policy implications for China’s evolving eldercare landscape.

A benchmarking approach to track and compare administrative charges on flow and balance in individual account pension systems

Managing contribution and capital market risk in a funded public defined benefit plan: Impact of CVaR cost constraints

Abstract: Basic public pension schemes and cut backs in earnings-related public pensions led to an increasing role of supplementary pensions such as pension funds for old-age incomes. In addition to demographic changes that challenge public pensions, private pensions face financial market risks. To what extent are the scope of pension fund capitalism and the impact of financial crises on pension funds related to different institutional arrangements? Given that different production regimes reflect different pension systems, we expect systematic diversities with regard to the public-private pension mix and the specific design of supplementary pensions. These varieties should be mirrored in different forms of vulnerability of pension funds tofinancial market crises. We hypothesize a higher scope of pension fund capitalism and vulnerability to financial market crises in countries with predominant market-based coordination mechanisms and short term strategies on financial markets (i.e. Liberal Market Economies).;

Restricted public pension schemes and cuts in earnings-related pensions have increased the role of pension funds. However, it is unclear from previous studies how far financial market crises affect pension funds mediated by trade unions and employee participation. This article draws on institutionalist arguments to link different mechanisms of coordination of market economies to differences in pension systems, corporate and pension fund governance, investment strategies and thus the vulnerability of pension funds to financial market risks. There is higher vulnerability to financial market crises in liberal market economies with weak trade union influence and high equity exposure.

We analyze the risks and rewards of moving from an unfunded defined benefit pension sys-tem to a funded plan for civil servants in Germany, allowing for alternative strategic contribu-tion and investment patterns using a Monte Carlo framework. For this purpose, we integrate traditional pension plan manager objectives (i.e. contribution rate volatility) and a Conditional Value at Risk restriction on overall plan costs. First, we estimate contributions as a percent of salary that would fully fund future benefit promises for active employees. Second, we identify a contribution and investment strategy that will minimize contribution rate volatility while at the same time restrict worst-case plan costs to the deterministic plan liability; this turns out to be a contribution rate of 13.4% of the payroll, combined with an asset mix of 41% in equities, 59% in bonds. Third, we analyze the time path of expected and worst-case contribution rates under the optimal strategy to explore chances of contribution rate cuts for current and future generations. We show that moving toward a funded pension system for German civil servants can be beneficial to both taxpayers and civil servants.

Over the 20th century, the state has acquired a prominent role in the administration of old-age pensions in Latin America, expanding legal coverage to the majority of the employed population. However, gaps in effective coverage remained large as a result of the high incidence of informal work. Over the last two decades of the 20th century, the almost exclusive role of the state in old-age protection was deeply challenged. Starting with Chile in 1981, several countries implemented structural pension reforms that shifted to individual accounts and private pension administration, thus completely reshaping the public-private balance in the pension system. Private schemes were presented as a new and more effective way to manage old-age security and promote economic growth. But these schemes also faced shortcomings, including high administrative costs, financial market risks, and problems of coverage, equity, and adequacy. Over the 2000s, as governments with a more progressive policy agenda took office in a context of favorable macroeconomic conditions, the state gained ground in the administration of old-age security. This more active role of the state has strengthened public pensions compared to two or three decades back, with better instruments for basic protection, new systems of administrative registry of contributors and pensioners, and broader coverage of the population across the territory.

Using a Monte Carlo framework, we analyze the risks and rewards of moving from an unfunded defined benefit pension system to a funded plan for German civil servants, allowing for alternative strategic contribution and investment patterns. In the process we integrate a Conditional Value at Risk (CVaR) restriction on overall plan costs into the pension manager's objective of controlling contribution rate volatility. After estimating the contribution rate that would fully fund future benefit promises for current and prospective employees, we identify the optimal contribution and investment strategy that minimizes contribution rate volatility while restricting worst-case plan costs. Finally, we analyze the time path of expected and worst-case contribution rates to assess the chances of reduced contribution rates for current and future generations. Our results show that moving toward a funded public pension system can be beneficial for both civil servants and taxpayers.

The Netherlands’ population is rapidly ageing, as is occurring in other OECD countries. The number of persons aged 65 and over relative to the working age population is set to double between 2010 and 2030. This will reduce economic growth and increase resource transfers to the elderly, placing pressure on the retirementincome and healthcare insurance systems. The Netherlands is better placed than most other OECD countries to meet these pressures as it has a large, funded occupational pension system. This reduces fiscal pressures from population ageing, although they remain substantial. Pre-funding these budget pressures, enhancing productivity growth, prolonging working lives and containing the increase in transfers to the retired population would reduce the economic costs of this demographic shock. Such reforms would also reduce the exposure of the pension system and, through tax-deductible pension contributions, the budget position to capital market risk. This chapter examines the problem of population ageing in the Netherlands and considers policy options for attenuating the adverse economic effects.

Research on policy experimentation has mainly focused on central–local relations; scholars have paid little attention to the interaction between policy experimentation and the public. We argue that policy experimentation can be used by decision makers as an instrument to communicate with the public, facilitating the building of a social consensus regarding controversial policies. We evaluate the effects of the Chinese government's policy experimentation efforts to promote shared responsibility between the state and individuals for the urban pension system on the public's regime support. Evidence from two rounds of a nationwide survey conducted before and after the policy experiment indicates that the policy experimentation has significantly contributed to citizens’ acceptance of their individual welfare responsibility. Moreover, the image-building of governmental responsibility via official news, with varied intensity across regions, consolidates the political trust of residents while posing a challenge to local government credibility in the long run.

The historical strength of Latin American public pension systems and the changes many countries are making in the contemporary period warrant understanding attitudes about public pensions in Latin America. Data were examined for three countries: Chile, Uruguay, and Venezuela, to see whether commonly tested welfare state theories explain individual differences in attitudes in these countries. Using basic multilevel modeling techniques, we find both individual- and country-level differences in attitudes toward government responsibility for and spending on public pensions. Understanding what predicts these attitudes in Latin America will help improve approaches to social welfare in this region.

This article reviews two rounds of pension reform in ten Latin American countries to determine whether they are moving away from individual retirement accounts (IRAs). Although the idea is provocative, we conclude that the notion of ‘moving away from IRAs’ is insufficient to characterise the new politics of pension reform. As opposed to the politics of enactment of IRAs of the late twentieth century, pension reform in Latin America in recent years has combined significant revival of public components in old-age income maintenance with improvement of IRAs. Clearly, the policy prescriptions that were most influential during the first round of reforms in Latin America have been re-evaluated. The World Bank and other organisations that promoted IRAs have recognised that pension reform should pay more attention to poverty reduction, coverage and equity, and to protect participants from market risks. The experience and challenges faced by countries that introduced IRAs, the changes in policies by international financing institutions, and the recent financial volatility and heavy losses experienced in financial markets may have tempered the enthusiasm of other countries from applying the same type of reforms. Scholars and policy-makers around the globe could benefit from looking closely at these changes in pension policy.

This article reviews two rounds of pension reform in ten Latin American countries to determine whether they are moving away from individual retirement accounts (IRAs). Although the idea is provocative, we conclude that the notion of ‘moving away from IRAs’ is insufficient to characterise the new politics of pension reform. As opposed to the politics of enactment of IRAs of the late twentieth century, pension reform in Latin America in recent years has combined significant revival of public components in old-age income maintenance with improvement of IRAs. Clearly, the policy prescriptions that were most influential during the first round of reforms in Latin America have been re-evaluated. The World Bank and other organisations that promoted IRAs have recognised that pension reform should pay more attention to poverty reduction, coverage and equity, and to protect participants from market risks. The experience and challenges faced by countries that introduced IRAs, the changes in policies by international financing institutions, and the recent financial volatility and heavy losses experienced in financial markets may have tempered the enthusiasm of other countries from applying the same type of reforms. Scholars and policy-makers around the globe could benefit from looking closely at these changes in pension policy.