Public Pay-as-you-go Research Articles

Fon Biriktirim Sistemi ve Yaşlanma: Ampirik Bir İnceleme

The social security reform wave in the 1990s and the early 2000s responded to the rising deficits of the public PAYG (pay-as-you-go) systems. Privatisation of social security was regarded as a cure for the population ageing problem believed to lie under the situation. Some academics were sceptic and argued that privatisation was not a remedy to the ageing problem. This paper empirically investigates the validity of this claim. Using a simple market equilibrium condition, the implications of the ageing population for saving rates are examined for more than 150 countries for the 2000 to 2100 period. It is found that ageing may cause unsustainability in funded pension systems. The impact is especially profound for southern and eastern European countries, Korea, and Japan.

Towards a Universal Pension Points System in France

A specificity of the current French system is that a private sector worker is currently covered by two mandatory public pay-as-you-go (PAYGO) schemes: a general defined benefit (DB) scheme — which is the main component — managed by the state and a points scheme (AgircArrco) managed by social partners, together representing about 70% of paid benefits.

The development of private pensions in Serbia: caught between a generic blueprint and an unconducive local environment

Serbia is one of the rare eastern European countries that decisively dismissed the controversial pension privatisation agenda whereby mandatory private pension funds would be introduced to (partially) replace existing public pay-as-you-go (PAYG) benefits. Instead, Serbia opted for a more traditional western European approach, combining PAYG cost-containment parametric reforms with the introduction of tax-preferred supplementary private pensions. We explain that the desire for equitable intergenerational burden-sharing was one of the key factors behind the decision-making process that made Serbia diverge from regional trends and World Bank orthodoxy. Nonetheless, problems that have plagued mandatory private funds in neighbouring countries, such as excessive operating costs and undiversified portfolios, have also been prevalent in the Serbian voluntary private pension fund industry, which failed to achieve tangible labour market coverage and whose survival has been due mostly to exclusive tax privileges.

The Privatization and Marketization of Pensions in Europe: A Double Transformation Facing the Crisis

In response to the demographic challenges and fiscal constraints, many European welfare states have moved toward the privatization and marketization of pensions in order to improve their financial sustainability. The privatization of retirement income responsibility has led to a shift from dominantly public pensions to a multi‐pillar architecture with growing private pillars composed of personal, firm‐based, or collectively negotiated pension arrangements. At the same time, marketization has led to the introduction and expansion of prefunded pension savings based on financial investments as well as stronger reliance of market‐logic principles in the remaining public pay‐as‐you‐go (PAYG) pensions. However, there are also important cross‐national variations in the speed, scope, and structural outcome of the privatization and marketization of European pension systems. Liberal market economies, but also some coordinated market economies (the Netherlands and Switzerland) as well as the Nordic countries have embraced multi‐pillar strategies earlier and more widely, while the Bismarckian pensions systems and the post‐socialist transition countries of Eastern Europe have been belated converts. The recent financial market and economic crisis, however, indicates that the double transformation may entail short‐term problems and long‐term uncertainties about the social and political sustainability of these privatized and marketized multi‐pillar strategies.

A macro-financial analysis of pension system reforms in emerging Europe: The performance of IRAs and policy lessons for Serbia

The article explores the initial macro-financial performance of partial pension system privatizations — involving privately-managed individual retirement savings accounts (IRAs) — undertaken in many emerging European countries.Usingempiricaldataforaperiodof closetoadecade, the evidence shows that returns on privately-managed IRAs have been below the implicit rate of return of public pay-as- you-go (PAYG) systems.High operating costs and undeveloped capital markets are identified as major contributing factors to the failure of privately-managed IRAs to meet reform expectations.In light of empirical evidence,Serbia is advised to focus on parametric PAYG reforms and to avoid reforms that involve the partial privatization of the pension system. issr_1391 23..44

The macroeconomics of pension reform: The case of severance pay reform in Italy

In the last two decades Italy implemented a number of reforms of the public pay-as-you-go (PAYG) scheme that curtailed future pensions. Governments therefore felt the need to increase the number of workers contributing to fully funded (FF) schemes to offset the expected fall in public pensions. In the private sector an existing saving fund, the severance pay scheme (Trattamento di fine rapporto or TFR) was used to expand the anaemic existing FF pillar. The macroeconomic content of the reform seems fragile since the economy's amount of precautionary saving has not changed. The question is why a bolder reform aiming at creating an additional new old-age saving scheme has not been attempted by the Italian Government. The answer presumably has to do with troubles surrounding the macroeconomics of pension reforms, in particular the difficulties of setting up a FF scheme from scratch or by diverting resources from an existing PAYG program. Not surprisingly, no reform was attempted in the public sector where the TFR works on a PAYG basis. An ancillary argument to defend the reform relies on presumed higher returns from private pension funds (PFs) compared to the old TFR. In this light, the paper examines the non-exiting financial performance of the PFs. The instability of financial markets, even before the current crises, and the fondness of workers for the old TFR are finally used to explain the low popularity of the reform. All in all, the reform seems to be more in the nature of political window-dressing, consisting in a change in management of an existing saving fund, in order to show that something has been done to preserve the future standard of living of retirees.

Determining factors leading affiliates to transfer from an individual accounts pension scheme to a pay‐as‐you‐go pension scheme: Evidence from Argentina

AbstractPrior to the recent implementation of the Argentine Integrated Social Security System (SIPA —Sistema Integrado Previsional Argentino), the 2007 reform represented the first major change in Argentina's old‐age social security system since 1994. For the first time, workers contributing to the private defined‐contribution individual accounts scheme were able to choose freely to move over to the public pay‐as‐you‐go (PAYG) scheme. This study is an attempt to analyse the special characteristics of those who opted for transfer to the public PAYG scheme and to discover whether the behaviour of these individuals is in line with that of a “simulated worker” attempting to optimize income. The analysis includes an estimate of the probability that individuals with certain characteristics will transfer.

The Battle of Future Pensions

This article examines the role of concepts and accounting techniques in shaping the debate and policy solutions on pensions. These concepts have been diffused around the world by epistemic communities, attaining global status as a means of describing the future financing burden of public pay-as-you-go (PAYG) pension systems. The World Bank and the International Labour Organisation (ILO) have played vital roles in these processes of diffusion. The article aims primarily to expose the importance of these conceptual tools in shaping the policy debate. Second, it accounts for their role as part of the contrasting policy stories that international organizations propagate in the global pension debate. Third, the article explores to what extent these conceptual tools and adhering pension policy stories have been applied and to what extent they have influenced the current pension reform processes in Norway.

Financing Retirement in the European Union

This paper explores how EU countries can address various challenges (including the aging of the population) affecting their systems of old-age income support. It presents two scenarios illustrating the most important uncertainties surrounding the major developments that affect the pension systems of the EU. To diversify these risks, EU governments should act on several fronts. In addition to the formation of human capital (especially that of children), employment (especially that of older workers) should be boosted. This calls for social insurance reform with more emphasis on individual saving schemes. Pension schemes should be more explicit about how they share demographic and other risks. Countries that currently rely heavily on public pay-as-you-go (PAYG) schemes should stimulate private pensions by gradually reducing PAYG benefits collected by high-income earners, by issuing new financial instruments, and by conducting intergenerational risk sharing through the tax system.

Are there positive incentives from privatizing social security? A panel analysis of pension reform in Latin America

The paper estimates the impact of social security reform – specifically, the transition from a purely public pay-as-you-go (PAYGO) system to one with private individual retirement accounts – on the share of the workforce that contributes to formal retirement security systems. Using a simple model of a segmented labor market, the paper exploits variation in data from a panel of eighteen Latin American countries, observed from 1980 to 1999. Results show a positive incentive effect after the introduction of individual retirement accounts that, ceteris paribus, increases the share of the economically active population who contribute to the reformed system. However, this takes place only gradually as employers and workers become familiar with the set of new social security institutions that reforms put in place.

L'avenir des régimes publics de retraite dans les pays du G7

The future of public pensions in the seven major economies Thierry Chauveau, Rahim Loufir In most OECD countries, the financing of the current public Pay-As-You-Go (PAYG) pension system may become quite worrisome due to the likely ageing of the population. This article provides an analysis of the consequences of the demographie transition on the equilibrium of the public pensions systems in the seven major economies. A new CGEM-OG model is used, which rules out the well known weakness of earlier models : the simulated age structure (and total population) do not coincide with the actual ones. For each of the seven countries, main macroeconomic aggregates, intergenerational transfers, and welfare criteria are analysed. Our conclusions are somewhat different from those based on other methodologies such standard CGEM-OG or econometric or generational accounting models. The main conclusions are that (i) Ageing of the population is a problem very similar from one developed country to another ; (ii) This problem is not so much worrying as is sometimes suggested and policies in which PAYG financing is maintained and the retirement age held constant are allowable ; (iii) There is no « one best social security policy » ; (iv) On the contrary, there is a trade-off between, on the one hand, lowering interest rates, increasing investment and output, lowering taxes,... and, on the other hand, increasing the standard of living of the retired, and (v) Most of these results still hold with the polar assumption of small open economies. Nevertheless, for countries in which the domestic real rate of interest is higher than the American one, opening the economy leads to better macroeconomic outeomes and higher actuarial fairness. It is the case for France and the United Kingdom ; the opposite situation characterizes Japan.