The Financial Crisis and Varieties of Pension Privatization Reversals in Eastern Europe

Since the global financial crisis, those East European countries that had partly privatized their pension systems in the 1990s or early 2000s increasingly scaled back their mandatory private retirement accounts and restored the role of public provision. What explains this wave of reversals in pension privatization and variation in its outcomes? Proponents of pension privatization had argued that it would boost domestic capital markets and economic growth. By revealing how pension privatization helped increase sovereign debt and how large a part of pension funds' assets was invested in government bonds, the crisis strengthened the position of domestic opponents of mandatory private accounts. But these actors' capacity and determination to reverse pension privatization depended on the level of their country's public debt and on pension funds' portfolio structure. Empirically, the argument is supported with case studies of Hungarian, Polish, and Slovak pension reform.     

Pension Privatization: Evolution of a Paradigm

From 1981 to 2004, a paradigm shift occurred in pension systems worldwide as more than 30 countries fully or partially replaced their state‐administered pay‐as‐you‐go pension systems with ones based on individual, private savings accounts. Yet in 2005, pension privatization abruptly stopped. After the 2008 crisis, several countries that had privatized their pension systems scaled back or even canceled individual accounts. Is the new pension paradigm dead? And if so, why? This article shows that fiscal and ideational factors caused a temporary halt to pension privatization worldwide and induced transnational pension policy networks to find new ways to respond to perceived failures. Adjustments to the new pension paradigm such as emphasizing minimum pensions and recommending that governments “nudge” rather than mandate pension savings will enable pension privatization to continue in years ahead, albeit in a revised form.     

Funding Levels and Gender in Public Pension Plans

Using a comprehensive sample of 2002 and 2005 U.S. public retirement systems, we found that public pension plan underfunding grew dramatically in these years despite a good economy, increasing state tax revenues, and strong stock market returns on average, plans were only 83% funded. Teacher plans and plans with the most retirees were more underfunded. We found no significant differences related to asset allocations or actuarial assumptions about inflation and rate of return. A primary factor associated with significantly lower underfunding was more female active participants in the plan, suggesting another risk to women's retirement income.     

Next generation of individual account pension reforms in Latin America

Latin America led the world in introducing individual retirement accounts intended to complement or replace defined benefit state-sponsored, pay-as-you-go systems. After Chile implemented the first system in 1981, a number of other Latin American countries incorporated privately managed individual accounts as part of their retirement income systems beginning in the 1990s. This article examines the subsequent "reform of the reform" of these pension systems, with a focus on the recent overhaul of the Chilean system and major reforms in Mexico, Peru, and Colombia. The authors analyze key elements of pension reform in the region relating to individual accounts: system coverage, fees, competition, investment, the impact of gender on benefits, financial education, voluntary savings, and payouts.     

The Political-Economic Dimension of Pensions: The Case of Japan

This article examines how pensions are interwoven with the public and private financial system in Japan and the consequences for pension reform. A growing literature focuses on the multifaceted ways in which pensions are interwoven with the larger political economy. This study builds on this literature and finds that (a) public and private pensions have been integrated deeply into Japan's system of developmental finance, (b) this integration has created new economic and political problems as governments have attempted to shift away from its developmental model through deregulation, liberalization, and administrative reform, and (c) because pension reform is intimately linked with these reforms, it involves addressing fundamental issues regarding the role of the state, finance, and firms. These findings collectively illustrate that pension reform is not only driven by issues of fiscal viability and benefit levels, but also by the nature of the way in which pensions are integrated into a country's system of finance.     

Does retirement education teach people to save pension distributions?

As defined contribution pension plans have become increasingly common over the past two decades, so have lump sum distributions from those plans. Employees who elect such a distribution take the balance of their pension account with them when they leave a job. They can then choose to maintain the funds in accounts designated for retirement, invest them in other saving vehicles, or spend them. If spent pension distributions are not replaced by other savings, however, the future elderly are unlikely to be able to maintain a desirable standard of living. With employee-funded pensions expected to play an increasingly important role in financing Americans' retirement, saving these funds in essential. This article is the first to examine the relationship between retirement education--specifically, meetings sponsored by employers or by public and private institutions--and the saving of lump sum distributions. Two definitions of saving are used: one that includes reinvestment only in tax-deferred saving vehicles, and a broader one that includes tax-deferred vehicles, general saving vehicles (stocks, bonds, savings accounts, and so on), and paying off debt. The analysis also evaluates the effects of retirement education on specific groups identified in previous research as being less likely to keep their pension distributions in tax-deferred accounts: namely, women, younger persons, and persons with less than a college education. The same groups tend to be less financially secure in retirement, making the effects of retirement education on them particularly relevant. With an econometric model using ordinary least squares and data from the 1992 Health and Retirement Study, the analysis finds that retirement education does not affect the overall likelihood that employees will save their distributions, whether in tax-deferred or non-tax-deferred vehicles. The picture is more complicated for subgroups of employees. Attending a retirement meeting is associated with an increased likelihood of saving among persons age 40 and under but a decreased probability of saving among college graduates and women. No effect was found for men, individuals over age 40, or persons who did not graduate from college. The finding that retirement education increases the likelihood of younger persons' saving a distribution is reassuring, for these workers are America's future retirees. However, the finding that attending a meeting does not increase saving among some of the most financially vulnerable groups is a matter of concern to policymakers. Further study of the long-term effects of spending pension distributions is needed.     

The Future of Public Sector Pensions

The dramatic rise in life expectancy and longer retirement has created serious concerns about the long‐term affordability of public sector pensions. Drawing on insights from a recent inquiry into public sector pension reform, commissioned by the Conservative–Liberal Democrat Coalition and led by the author, this article outlines the challenge faced by policy makers and sets out how it should be addressed. It argues that, with 12 million people active in this part of the pensions system, and estimates that the gap between contributions and payments will grow from £3bn to £10bn in the next decade, the government has no choice but to enter the ‘lions’ den’ of pensions’ policy. It contends that any long‐term solution is to be crafted cannot be based solely on economics, but must also answer fundamental questions of ethics and equity.     

Governance and governmentality: a discussion in the context of UK private pension provision

Abstract

While the governance of pension schemes, and the risk this poses for pension savers, is a prominent issue in current pension debate in the UK, this paper places that debate in, arguably, the more important context of the governance of individual behaviour. Using the concept of governmentality as a means of interpreting the course of recent UK pension policy and its attempts to influence individual saving behaviour, it critiques that policy. The paper then goes on to consider the effect of the introduction of personal accounts upon the pensions landscape, and in particular its potential to push forward the government's recent approach to pension provision. It argues that these reforms, rather than furthering individual saving for retirement, may alternatively create the very real possibility of undermining it.     

Income changes at and after Social Security benefit receipt: evidence from the Retirement History Study

This article details the changes in total income and the composition of its sources that occur upon initial receipt of Social Security benefits, and in the first 4 years thereafter. The study shows that, for many persons, "retirement" is a gradual process rather than an immediate cessation of all paid work. About half the persons entering the rolls continue at least some paid employment after benefit receipt. Even more do so if previous earnings were low or if they have no pension to supplement their benefits. In real terms, the average couple initially loses about one-third of its previous income, while nonmarried women, with less to begin with, lose somewhat less. In the time period studied, inflation was high in historical terms: the Consumer Price Index rose by approximately one-third in the 4-year period following benefit receipt. During that time, the real income of beneficiaries declined by about 10 percent from the levels immediately after benefit receipt. Fewer beneficiaries continued to work 4 years later, so earnings played a smaller role in total income. The real value of private pensions declined by about 20 percent in the 4-year period, but because most persons with such pensions had other, better-protected sources of income, their total income declined by less than 10 percent.     

财政支出比较视角下公务员退休金制度设计

公务员退休金和企业职工养老保险金的待遇差是社会热点问题,并波及事业单位养老金制度改革,助长了提前退休浪潮。机关公务员与企业人员退休后收入的待遇差来自人员身份和计算方法的制度隔墙,本文审视了针对公务员养老金的政府责任和财政负担,探讨了中国公务员退休金制度的新路径,即三元组合的公务员养老金制度。养老金制度目标有两个,一是通过国民基础养老金避免老年贫困;二是通过职业养老金个人账户实现老年体面生活。公务员作为公民应享有国民基础养老金,作为政府雇员应享有职业养老金并附之以廉政奖励养老金,政府应当分别承担相应责任。通过模型计算和实际数据模拟计算表明,新制度初期财政支出超过原有制度,但若干年后低于原有制度,本文提出的模型和政策建议具有不降低公务员养老金待遇的同时减轻未来政府财政负担的效应。     

Income change at retirement

Less than one-fourth of SIPP retirees made the transition from full-time work and no benefit receipt to benefit receipt and no work during the 32 months of the 1984 SIPP panel, and these full retirees appear to differ economically from those who had not fully retired during the 32 months. Income declined to 60 percent of preretirement levels for those who received Social Security benefits and employer pensions, and to 46 percent for those who received only one type of benefit after ceasing full-time work. Family income cushioned the decline. About one-third of retirees had larger changes in income shortly before or after observed retirement transitions than right at the retirement transitions. Larger changes in income were associated with changing one's work effort. Asset income was quite variable across the entire panel. A monthly view of persons in various stages of retirement has brought into sharper focus than has previously been recognized the many paths into retirement, often over an extended period of time, during which status may change back and forth. A one-time or occasional extension of the SIPP to perhaps a 5-year period for the near-retirement-age population would increase the proportion of retirees for whom the full process is observed in such great detail. Alternatively, information on the timing of changes in labor-force and pension status may be collected in a proposed new Retirement History Study that calls for interviewing persons at 2-year intervals over a 10-year period for a more accurate picture of the retirement process.     

Social Security: a financial appraisal for the median voter

Several explanations have been proposed for why voters continue to support unfunded social security systems. Browning (1975) suggests that the extremely large unfunded pension systems of most democracies depend on the existence of a voting majority composed of middle-aged and older people who fail to fully internalize the cost of financing the system. In fact, when voting, economically rational workers consider only their current and future contributions to the system and their expected pension benefits--not their past contributions, which they regard as sunk costs. If, for a majority of voters, the expected continuation return from social security exceeds the return from alternative assets, an unfunded social security system is politically sustainable. This article explores the validity of Browning's proposition by quantifying the returns that U.S. voters in presidential elections from 1964 to 1996 have obtained, or expect to obtain, from Social Security. Did "investments" in Social Security outperform alternative forms of investment, such as mutual funds or pension funds, for a majority of the voters? What can be expected for the future? The U.S. Social Security system redistributes income within age cohorts on the basis of sex, income, and marital status. To account for some of these features, the median voter is represented by a family unit whose members--a husband who accounts for 70 percent of household earnings and a wife who accounts for 30 percent--make joint economic and voting decisions. Thus, retirement and survival benefits paid out to the spouse of an insured worker can be included in the calculation of Social Security returns. Interval estimates of voters' family incomes from the U.S. Census Bureau were used to obtain the median voter's household earnings. The median voter's age is derived from the ages of those who voted in presidential elections, not from the ages of the entire electorate. The median voter's contributions to Social Security are the product of the joint employer/employee Old-Age and Survivors Insurance (OASI) tax rate and employee earnings. Data on actual contributions are available for median voters in the 1964 to 1976 elections; Social Security Administration (SSA) estimates are used for future tax rates and average wage growth rates. Data on actual old-age, retirement, and survivor benefits, as well as estimates of future benefits, are also available from SSA. Analysis of ex-post returns from "investing" in Social Security and from a buy-and-hold strategy applied to three alternative assets--the Standard & Poor's Composite Index (S&P), the Dow Jones Industrial Average (DJIA), and U.S. government bonds--shows surprising results. In 1964 and 1968, Social Security largely outperformed the other three assets. In 1972, Social Security and the stock market performed almost equally. In 1976, however, the median voter would have been better off in the stock market. The expected returns for median voters in later elections cannot be directly compared with realized returns from alternative assets. However, estimates range from 5.7 percent in 1984 to 7.0 percent in 1996 and thus compare favorably with average returns of 5.6 percent for S&P, 5.3 percent for DJIA, and 2.1 percent for government bonds over the 1964-1996 period. Although these findings must be taken with caution since they compare ex-post returns, they show that, despite a continuous reduction in profitability, Social Security still represents a safe, high-return asset for a majority of families.     

Retirement-age women and pensions: findings from the New Beneficiary Survey

This article examines the extent of employer-sponsored pension receipt and the amounts of pension benefits among a cohort of retirement-age women interviewed in the New Beneficiary Survey. These women reported relatively low levels of pension protection. Only 27 percent were receiving a pension in late 1982, either from their own employment or as survivors. This was one-half the rate of current pension receipt among a comparable cohort of men. An additional 17 percent of the women were expecting pensions of their own or had potential survivor protection through their husbands' pensions. Among those receiving a pension, women reported median monthly benefits of $250, compared with $460 among men. Pension benefits were a fairly important source of income for these women, particularly those who were unmarried. Almost one-half of the unmarried recipients depended on their pensions for one-third or more of their total incomes, and without their pension income 11 percent would have been below poverty income levels.     

Income of retirement-aged persons in the United States

This article reviews the composition and level of retirement income in the United States and how this has changed over time, focusing on two overlapping but distinct groups--the entire population aged 65 or older, and recent retirees. Changes in the composition of income of the aged over the past 20-30 years, including greatly expanded Social Security and pension coverage and an increasing number of persons with retirement savings, have improved the economic status of the aged not only in comparison with the aged in earlier years, but also in comparison with younger adults who derive most of their income from earnings. New retired workers are better off than the total aged population in several respects. The younger cohorts now in the labor force will spend more of their working lives in the more favorable conditions now present than was true of past new beneficiaries or the aged as a whole. It is, therefore, not unreasonable to expect that today's workers will enjoy more and larger pensions and increased income from savings to supplement their Social Security benefits when they retire.     

An Options Pricing Method for Calculating the Market Price of Public Sector Pension Liabilities

State and local public sector employee pensions are widely known to be underfunded, but pension financial reports do not reveal the true extent of funding shortfalls. Pension accounting methods assume that plan investments can earn high returns without taking any account of the market risk involved. This gives a false sense of the financial strength of public sector pensions and understates risks to taxpayers. Since accrued pension benefits are legally and constitutionally protected, any pension funding shortfalls must be met by taxpayers. This benefit guarantee amounts to an effective put option on plan investments, the cost of which is not disclosed under current actuarial accounting. This paper uses an options pricing method to calculate the market value of taxpayer guarantees underlying public sector pensions. The average funding ratio declines from 83 percent under actuarial accounting to 45 percent under this options pricing approach. The typical state has unfunded public pension liabilities three times larger than its explicit government debt. Public pension shortfalls equal an average of 27 percent of state gross domestic product, posing a significant fiscal challenge in coming years. Accurate measures of public pension liabilities are important for policy makers, taxpayers, investors considering the economic environment in which to start or locate a business, and bond purchasers considering the risk premia appropriate to municipal government bonds that are in practice subordinate to public pension liabilities.     

The Politics of Occupational Pension Reform in Britain and the Netherlands: The Power of Market Discipline in Liberal and Corporatist Regimes

The politics of occupational pension reform has attracted less attention than state pension retrenchment. Yet, in countries with large occupational welfare sectors changes in company provision can be equally important for welfare system generosity. This paper compares recent occupational pension developments in the Netherlands and Britain, exemplars of coordinated and liberal capitalism. The paper argues that despite regime-typical differences in the nature and process of change, recent developments have also been remarkably similar. In both countries retrenchment and individualisation has left most citizens at risk of being less well off in retirement. Corporatist governance in the Netherlands has not challenged the overall orientation of this process, but has merely distributed the costs of retrenchment more fairly than liberal Britain. Instead, the constraints of the globalised financial market directed change: exposure to market discipline, reinforced by national policy actors and international market regulators, made occupational provision vulnerable to retrenchment regardless of regime type. Thus, the significance for levels of social protection of differences between liberal and corporatist governance models of occupational pensions may have been overrated.     

Who Wants to Privatize Social Security? Understanding Why the Poor Are Wary of Private Accounts

The poor are less likely than others to support the privatization of Social Security. What accounts for this income‐based difference in public opinion? This article uses a new survey to explore attitudes toward privatization. The poor tend to believe the government will manage Social Security responsibly, expect that they will rely on Social Security as a primary source of income, and prefer to keep their money in the current system rather than save or invest it. Together, these expectations and beliefs explain much of the income gap in support of privatization.     

Trouble Keeping Promises? An Analysis of Underfunding in State Retiree Benefits

This article examines the funding of two key components of state government total compensation: pensions and other postemployment benefits (OPEB), the latter consisting primarily of retiree health care. A brief overview of the economic, political, and legal environments of state pensions and OPEB is followed by an analysis of the unfunded liabilities for these respective benefits. Regression results suggest the importance of state management capacity, per capita income, and public employee density in understanding differences in the states' pension and OPEB funding performance. Additionally, employers' level of pension contributions, legislative professionalism, and fiscal constraint are significantly related to pension funding, while political ideology and levels of state pension funding are significantly related to OPEB funding. The article concludes by discussing the tensions that states face in attempting to balance the fiscal imperative of funding retiree benefits liabilities with the human capital challenge of attracting and retaining a professional workforce. Failure on either could be costly to state government.     

State and local pension plans' equity holdings and returns

This article explores recent trends in the size and performance of the equity investments of state and local pension plans. It also provides a context for the discussion about investing Social Security trust fund reserves in private equities. Equity holdings and returns for five of the largest private pension plans were compared with those of state and local pension plans. Key findings discussed in the article include: Equities were the largest investment in the aggregate portfolio of state and local pension plans in 1999 and represented 67 percent of the $3 trillion in aggregate state and local pension assets. Equity allocation of the five private plans resembled that of the aggregate. About 80 percent of state and local pension plan holdings were domestic equities in 1999. The five largest plans had about the same domestic/foreign allocation of equity investments during that same period. In 1999, state and local pension plans held about 11 percent of the U.S. equity market, which includes foreign equities held in the United States. State and local pension plans held about 10 percent of domestic equities in the U.S. equities market that same year. Returns on equity investments over a 10-year period were more than 17 percent for both private pensions and state and local pension plans. Although private plans tend to have slightly higher total returns, the difference stems from the higher equity asset allocation of the private pensions that were studied.     

Class bases of universal social policy

Abstract. Institutional pension policy is held to be one of the trade marks of the celebrated Scandinavian model. Universal national pensions guarantee a decent livelihood to every citizen irrespective of socio-economic status. Income-related pensions that are paid on top of the national pensions secure the standard of living achieved during the working career. This Scandinavian institutionalism has usually been associated with long-lasting working class hegemony, consolidated by the deliberate goal of abolishing means-testing from national pensions and expanding the scope and quality of income-related pensions. However, some studies challenge this interpretation. Instead, they emphasize the crucial role played by the middle classes. By using survey data from Finland, this study seeks to determine which socio-economic groups are in favour of the present Finnish pension policy model characterized by universal basic pensions and income-graduated work-merit pensions. The results show that workers and farmers are more willing to introduce means-testing and flat-rate pensions than white-collar workers. Correspondingly, these groups are more sceptical of income-graduated benefits. Middle classes, especially upper white-collar workers, support income graduated benefits and are more reluctant than workers and farmers to introduce means-tested or flat-rate pensions. Thus, the results indicate that the support for the present institutional pension policy model in Finland is strongest among the middle strata. But the results also indicate that this support is greatly dependent on benefit form, and when debating on the class basis of the Scandinavian universalism, we must be more explicit in specifying which aspects of universalism are at stake.