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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.

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


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