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Pensions Core Course 2013: Global Patterns of Pension Provision
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Pensions Core Course 2013: Global Patterns of Pension Provision

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  • 1. 1Global Patterns of Pension ProvisionRobert Palacios, Head, Pensions Team World BankCore Pension CourseWashington DC, March 2013
  • 2. 1689 1889 1982 TodayPension evolution (one version)
  • 3. THE RISE OF DB SCHEMES IN 1935“…the old age pensions he called forcame to be financed with wage basedtaxes was an accident.”
  • 4. THE RISE OF DB SCHEMES IN 1975
  • 5. THE RISE OF DB SCHEMES IN 2012
  • 6. Life cycle of PAYGO scheme6-30-20-1001020304050600 0.05 0.1 0.15 0.2elderly/workerssurplus/revenues
  • 7. OECD countries at end of the life-cycle70 50 100 150 200 250 300SwitzerlandUSANew ZealandGermanyDenmarkUKFinlandSwedenItalyUnfunded pension liabilities as share of GDP (retirees only)Source: Beltrametti and De la Valle (2011)
  • 8. Developing country IPDs801002003004005006000 2 4 6 8 10 12 14 16UnfundedPensionLIabilitiesas%ofGDPPension spending as % of GDP
  • 9. Aging and pension spending9
  • 10. Parametric and systemic reforms* Parametric Raising effective retirement ages and linkingwith longevity Raising contribution rates Reducing future accrual rates and taking intoaccount longer wage periods Moving to price indexation Notional accounts or NDCs Replacing part or all of DB with DC*(Integration of civil service schemes to be discussed in later session)10
  • 11. 12367812141517212324272829282728051015202530351980 1988 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2011 2012NumberofCountriesChilePeru UruguayMexicoBoliviaEl SalvadorHungaryKazakhstanPolandSwedenHong KongCosta RicaBulgariaCroatiaEstoniaNigeriaSlovakiaUnited KingdomArgentinaAustraliaDom. Rep.KosovoRomaniaMacedoniaArgentinaclosedHungaryclosedCzech RepublicTHE RISE OF DC SCHEMES:FROM SANTIAGO TO PRAGUE
  • 12. 12Share of benefit from DCColombia Costa Rica000.250.50.7510.5 1 1.5 2 2.5 3Private DCMinimumpension00.250.50.7510 0.5 1 1.5 2 2.5 3Private DCPublic DB schemeProportion of benefit from private DC vs public DBLow income Low incomeHigh income High income
  • 13. DC schemes in 201213
  • 14. 14Mandated pensions todayPublicly-managed DB,PAYG43%Publicly-managed DC7%Public PAYG DB+ Private funded DC18%Publicly- managedpartially funded DB31%Privately-Managed, funded DC4%Note: Select countries: only national contributory schemes included
  • 15. But most workers not covered…15Coverage, per cent(number of countries)80 to100 (15)60 to 80 (21)40 to 60 (15)20 to 40 (26)0 to 20 (37)
  • 16. Contributory scheme coverage16y = 0.0002e1.8464xR² = 0.77120%10%20%30%40%50%60%70%80%90%100%2.0 2.5 3.0 3.5 4.0 4.5 5.0Activemembers(%WorkingAgePopulation)Log Income per capitaActive coverage vs Income per capita
  • 17. Elderly coverage17
  • 18. RETURN OF SOCIAL PENSIONS
  • 19. MATCHING CONTRIBUTIONSCountries attemptingcoverage expansion bymatching contributions ofinformal sector workers:China, Colombia, India,Mexico, Peru, Thailand,Turkey, Vietnam
  • 20. 20Summary and looking forward For a century, public DB plans spread across the globeand dominated pension provision but… Unfunded liabilities are catching up with maturing systemsas the demographic transition unfolds resulting in cuts In the last two decades, prefunding and especially DCplans has taken on greater role raising new issues ofcosts, investments, payouts and supervision Coverage has emerged as the key issue for most low andmiddle income countries with policy discussion centeredon the potential role of social pensions and innovativeways of incorporating the informal sector workforce What will younger countries learn from the experience ofthe older countries?
  • 21. Thank you!See us atwww.worldbank.org/pensions21