"Main preconditions for a successful implementation of pension reform"   Kyiv 26 February 2009 Presented by  Dar...
Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroecon...
Political consensus <ul><li>Concept-making stage: </li></ul><ul><ul><li>speed of transition from the old to the new system...
Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroecon...
Public support and understanding <ul><li>Key messages must be passed </li></ul><ul><ul><li>where the pension money come fr...
Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroecon...
Macroeconomic and financial constraints <ul><li>Situation of the budget must be able to bear the cost of introducing the r...
Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroecon...
Government capacity (Barr, 2006) <ul><li>economic capacity to maintain long-term  macro stability </li></ul><ul><li>politi...
Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroecon...
Administrative capacity (Chlon-Dominczak, 2006) <ul><li>„ Introducing individual accounts is a technological and operation...
Technical conditions (Ch l o n-Domin czak, 2006) <ul><li>proper window of opportunity </li></ul><ul><li>„ Sufficient time ...
Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroecon...
Capital market development (Góra, 2008) <ul><li>well designed and executable property rights </li></ul><ul><li>well develo...
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Main Preconditions For A Successful Implementation Of Pension Reform

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28 Feb 2009, invited speaker for the conference Reform of the pension system in Ukraine, Kommiersant, Kiev, Ukraine.

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Main Preconditions For A Successful Implementation Of Pension Reform

  1. 1. &quot;Main preconditions for a successful implementation of pension reform&quot; Kyiv 26 February 2009 Presented by Dariusz Stańko Warsaw School of Economics Международная конференция «Реформа системы пенсионного обеспечения в Украине»
  2. 2. Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroeconomic and financial constraints </li></ul><ul><li>Government capacity </li></ul><ul><li>Administrative (infrastructure) capacity and Technical preconditions </li></ul><ul><li>Capital market development </li></ul>
  3. 3. Political consensus <ul><li>Concept-making stage: </li></ul><ul><ul><li>speed of transition from the old to the new system, methods of financing transition debt </li></ul></ul><ul><ul><li>degree of equivalency – elimination of redistribution </li></ul></ul><ul><ul><li>pension guarantees for the most vulnerable </li></ul></ul><ul><ul><li>conversion of the rights from the old system to the new system </li></ul></ul><ul><ul><li>how to „buy in” some groups/institutions of interest and neutralize others? </li></ul></ul><ul><li>Legislation stage </li></ul><ul><li>„ After-care” stage – threat of : </li></ul><ul><ul><li>reform reversal (populism, economic crisis) </li></ul></ul><ul><ul><li>rejection – public and media must stay informed </li></ul></ul>
  4. 4. Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroeconomic and financial constraints </li></ul><ul><li>Government capacity </li></ul><ul><li>Administrative (infrastructure) capacity and Technical preconditions </li></ul><ul><li>Capital market development </li></ul>
  5. 5. Public support and understanding <ul><li>Key messages must be passed </li></ul><ul><ul><li>where the pension money come from? </li></ul></ul><ul><ul><li>why there is the pension problem? </li></ul></ul><ul><ul><li>what are the advantages of the reform? </li></ul></ul><ul><ul><li>what are the disadvantages? </li></ul></ul><ul><ul><li>how do the mechanisms work? (saving phase, annuity phase) </li></ul></ul><ul><li>Role of the media (no „Hawaii islands” – the Polish case) </li></ul>
  6. 6. Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroeconomic and financial constraints </li></ul><ul><li>Government capacity </li></ul><ul><li>Administrative (infrastructure) capacity and Technical preconditions </li></ul><ul><li>Capital market development </li></ul>
  7. 7. Macroeconomic and financial constraints <ul><li>Situation of the budget must be able to bear the cost of introducing the reform (administration, infrastructure, educational and information campaigns) plus: </li></ul><ul><li>Pension debt from the past – the demographic history of the system (c.f. Palmer, 2006) </li></ul><ul><ul><li>how much deficit created so far – tax overhang </li></ul></ul><ul><ul><li>how much explicit liabilities will appear due to the conversion of the rights of the old PAYG DB system to the new (N)DC system, </li></ul></ul><ul><ul><li>reserve fund? - „some financial reserves needed if large cohorts of workers to help finance their pensions” (Palmer, 2006) </li></ul></ul><ul><ul><li>debt arising from disability and survivors’ pensions (if no money for conversion to pensions given to the new NDC system) </li></ul></ul><ul><ul><li>debt arising from financing previously granted privileges that will be gradually phased out </li></ul></ul><ul><li>Pension debt due to transition cost in the case of (partial) funding </li></ul>
  8. 8. Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroeconomic and financial constraints </li></ul><ul><li>Government capacity </li></ul><ul><li>Administrative (infrastructure) capacity and Technical preconditions </li></ul><ul><li>Capital market development </li></ul>
  9. 9. Government capacity (Barr, 2006) <ul><li>economic capacity to maintain long-term macro stability </li></ul><ul><li>political capacity to make the system long- term credible </li></ul><ul><li>advanced institutional capacity building the IT network, social insurance agency operations, monitoring changes in life expectancy, maintaining the long-run balance of the system (and the reserve fund) </li></ul>
  10. 10. Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroeconomic and financial constraints </li></ul><ul><li>Government capacity </li></ul><ul><li>Administrative (infrastructure) capacity and Technical preconditions </li></ul><ul><li>Capital market development </li></ul>
  11. 11. Administrative capacity (Chlon-Dominczak, 2006) <ul><li>„ Introducing individual accounts is a technological and operational challenge” </li></ul><ul><li>recording money and information flows </li></ul><ul><li>individual accounts massive processes – need for high quality: </li></ul><ul><ul><li>collection and assignments of the payments </li></ul></ul><ul><ul><li>registration of information </li></ul></ul><ul><ul><li>transfers </li></ul></ul><ul><ul><li>info for all parties in the system </li></ul></ul>
  12. 12. Technical conditions (Ch l o n-Domin czak, 2006) <ul><li>proper window of opportunity </li></ul><ul><li>„ Sufficient time should be allowed between completing the legislation and implementing the pension system.” </li></ul><ul><li>separating social security from the state budget (lifetime income smoothing vs social assistance) </li></ul><ul><li>assessing the quality of identification numbers necessary to have proper information for individual accounts. </li></ul>
  13. 13. Pension reform: <ul><li>Political consensus </li></ul><ul><li>Public support and understanding </li></ul><ul><li>Macroeconomic and financial constraints </li></ul><ul><li>Government capacity </li></ul><ul><li>Administrative (infrastructure) capacity and Technical preconditions </li></ul><ul><li>Capital market development </li></ul>
  14. 14. Capital market development (Góra, 2008) <ul><li>well designed and executable property rights </li></ul><ul><li>well developed financial markets </li></ul><ul><li>well developed and independent financial supervision </li></ul><ul><li>availability of assets (proper types and amounts) </li></ul><ul><li>participants risk aversion high enough to accept an exposure for investment risk </li></ul><ul><li>openness of general public to be served by private firms operating in the social security </li></ul><ul><li>openness for international investing (life cycle funds, diversification, local market constraints) </li></ul>
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