Welfare,Inequality and Financial Effects of a Multi-Pillar Pension Reform: The Case of Peru

This paper studies the potential effects of a multi-pillar pension system on pension inequality, actuarial liability and welfare in Peru, by means of simulations of future distributions of pensions with social security administrative records. The results show that actual pension inequality and actuarial liability can be substantially reduced with welfare preserving policies. The simulations illustrate that when welfare is considered, it is important to define the implied value judgments, which are not universally agreed upon. Therefore, this paper highlights the trade-offs of a pension policy reform and contributes to assess the second generation of pension reforms in Latin America.     

Political enthusiasm for social pensions and its eventual decline in Taiwan: an institutional account of pension dynamics in a new democracy

Over the last two decades, there has been a remarkable transformation of the demography and political economy of East and Southeast Asia, thus raising pensions as an important policy issue. In addressing the pension needs of those outside formal sector employment, Taiwan was the regional forerunner regarding social pension provision. However, the immense political popularity of these schemes waned and from the mid-2000s onwards the government began to substitute them with a contributory system for the socially disadvantaged. This paper analyses the political dynamics of social pensions in Taiwan, from expansion of coverage through to gradual dismantlement. The politics surrounding these benefits has received scant attention in international scholarship, with the World Bank and the Asian Development Bank Institute, in particular, having focused most of their attention on policy design issues. The contention here is that a specific configuration of political factors featured prominently in Taiwan, thus providing an explanation for the evolution of its pension policy. Also, these political dimensions can shed light on how this type of pension could evolve in other East and Southeast Asian countries, which is pertinent given that many have increasingly ageing populations.     

After pension reform: Navigating the “Third Rail” in China

Studies of pension reform in developing and transition economies tend to take for granted the capacity of states to implement ambitious and complicated new schemes for the provision of old-age income to pensioners. This article explains the fragmented, decentralized pattern of pension administration in China as an unintended consequence of pension reform. Policy legacies from the command-economy period, principal-agent problems in the reform period, and the threat of pension protests left urban governments largely in control of pension administration. The central government thus succeeded in its policy goals of pension reform but failed to gain administrative control over pension funds. Mark W. Frazier is assistant professor of political science and the Luce Assistant Professor of East Asian Political Economy at Lawrence University. He is the author ofThe Making of the Chinese Industrial Workplace: State, Revolution, and Labor Management (Cambridge University Press, 2002). His current research focuses on how central and local governments in China compete over pension reform. The author gratefully acknowledges helpful comments from Mary E. Gallagher, William Hurst, Dorothy Solinger, Jaeyoun Won, and two anonymous reviewers fromStudies in Comparative International Development. Funds for this research were provided by the Luce Foundation, the University of Louisville, and Lawrence University.     

Market-Oriented Reforms as a Tool of State-Building: Russian Pension Reform in 2001

Despite domestic opposition and several policy alternatives, in 2001 the Russian government adopted a pension reform that was potentially costly and had uncertain long-term benefits. Demographic and fiscal pressures created the desire to reform and a more cooperative Duma made it possible to do so. These points do not explain why Putin chose the pension privatisation option. Russia's pension reform is best understood as part of a state-building strategy to diminish the role of powerful bureaucracies. Russia's welfare state was not merely the product of a powerful and popular president, but rather a tool to create a stronger executive.     

Poverty among the elderly in Sub-Saharan Africa and the role of social pensions

Drawing on household survey information, this study delineates the poverty profile of the elderly in 15 low-income sub-Saharan African countries which include countries with a high and low prevalence of the HIV-AIDS pandemic. The study shows that the poverty situation of the elderly living with children and the elderly-headed households is much worse than the average in many countries. The impact of providing a social pension to the elderly on group-specific and national poverty head-count ratios and poverty gap ratios, and its fiscal implications, are analysed. Simulating various plausible eligibility criteria and benefit levels, the study concludes that while the case for an universal (untargeted) social pension is weak, substantial welfare gains can be obtained at a low cost with a social pension targeted to the poor among the elderly.     

Social Security and Retirement in Uruguay

We estimate a structural life-cycle model for retirement behaviour using work history records of the main Uruguayan pension programme. The estimated coefficient of relative risk aversion is around 1.5 and the estimated discount rate is about 1.8 per cent per annum. The marginal disutility of work increases with age and is larger for women than men, and for private than public employees. Simulations show a very low impact of the 1995 pension reform on retirement ages. Many individuals in this population respond little to economic incentives and some individuals would advance rather than postpone retirement after the reform.     

Household Saving Behaviour in an Extended Life Cycle Model: A Comparative Study of China and India

This paper examines the determinants of household saving in China and India over the last few decades using the life cycle model, with appropriate modifications to account for the expected benefits of pension saving. Consistent with the predictions made in the life cycle model, higher income growth promotes more household saving, and higher age dependency does the opposite. An increase in the inflation rate appears to encourage household saving. Interestingly, the evidence suggests that an increase in expected pension benefits tends to discourage household saving in China in the long run, but the reverse is found in India.     

Public Pension Funds and Alternative Investments: A Tale of Four Swedish National Pension Funds

This exploratory study offers insights into why public pension plans might invest in alternative asset classes at levels inconsistent with modern portfolio theory. Using a case study methodology, the research relies on fieldwork data and in-depth interviews with individuals familiar with four Swedish national pension funds. The findings suggest that alternative assets are perceived as important vehicles for improving portfolio diversification, but that the funds’ propensity to invest in them is constrained by information asymmetry and access to alternatives. The findings also indicate that investment restrictions and political considerations have had limited effects on decisions to invest in alternative assets.     

Effects of Governance Practices and Investment Strategies on State and Local Government Pension Fund Financial Performance

Abstract

Recent statistical studies concerning state and local government pension funds’ boards of trustees have focused on two complementary issues. First is the influence governance practices have on administration of fund assets. Second is the impact of investment strategy choices on funds’ total rates of return. Reported results indicate that the primary effects of governance practices on pension outcomes are indirect via asset allocation decisions. This study re-examined these issues using abnormal return as an inherently valued measure of risk adjusted financial performance. An innovation of the investigation is that “process analysis” was used to decompose the direct and indirect effects of governance practices on financial performance. Results suggest that while both types of effects exist, direct impacts dominate relative to mediating processes.     

In Search of Inclusion: Informal Sector Participation in a Voluntary,Defined Contribution Pension System

This paper examines who contributes and who persists in contributing in a national, voluntary, defined contributory pension programme, where the government provides the incentive of matching contributions of a minimum amount (USD 16). The paper uses proprietary data from a financial services firm where 12 per cent of customers (37,000 individuals) chose to participate in this programme. The evidence shows that only about 50 per cent of contributors reach the minimum amount for the co-contribution, but that participants persist in contributing even if they failed to contribute the minimum amount in a given year. While this paper does not provide causal estimates, it does present evidence of considerable interest among the informal sector in a state-run voluntary pension programme in an emerging market where access to formal finance is otherwise poor.     

Will the regulation of governmental accounting go too far?

The establishment of the Governmental Accounting Standards Board (GASB) ushered in a new era in the regulation of governmental accounting. The promotion of uniform accounting standards for all state and local governments and the adoption of more effective regulations in certain areas, such as pension reporting, may lead to lower borrowing costs for governmental units. The GASB should, however, be concerned not only with the potential benefits associated with any new regulations but also with the related costs of implementing these regulations.     

Institutional Arrangements and State and Local Financial Forecasting

Abstract

The articles in this symposium present various consequences that effectively result in changes from adopted budgets during the implementation phase, which derive from institutional structure. The institutional structures referred to include such attributes as internal policy, procedural methodology, longevity in office, and reward and incentive systems related to performance outcomes

For local governments, structural influences studied include changes in leadership in the executive and legislative branches, longevity in office of budget administrators, and differences related to mayor-council vs. council-manager forms of government. Internal policies reported on cover methodology used to forecast revenues such as quantitative methods versus informed judgment, budgetary controls and spending policy related to mandated spending beyond local government control, and procedures for benchmarking within the agency as well as with peer groups and professional standards.

Consortia of governments are referenced regarding performance evaluation as is the process for gaining consensus between the executive and legislative branches, including expert outside opinion. Other influences on performance outcomes reported on are those tied to the risk-reward system built in to the institutional structure, which includes risk tolerance of the individuals who make pension fund investments.     

Pensions and the Health of Older People in South Africa: Is there an Effect?

Abstract

This paper critically reviews evidence from low and middle income countries that pensions are associated with better health outcomes for older people. It draws on new, nationally representative survey data from South Africa to provide a systematic analysis of pension effects on health and quality of life. It reports significant associations with the frequency of health service utilisation, as well as with awareness and treatment of hypertension. There is, however, no association with actual control of hypertension, self-reported health or quality of life. The paper calls for a more balanced and integrated approach to social protection for older people.     

Rethinking the ‘open functional’ approach: Ideas,problem pressure and reform in the contemporary welfare state

Recognition that welfare states continue to change has fostered debate about the relationship between ideas and policy problems in driving governments towards reform. To move the debate forward, this article proposes a modification of Barbara Vis and Kees van Kersbergen's ‘open functional approach’. It first argues that while policy problems may provide ‘functional pressure’ to reform, this pressure is significant only in so far as inaction would risk electoral punishment. Reform pressure is hence best evaluated with reference to contemporaneous expert advice, public opinion data and the timing of elite and media attention. Second, it suggests that ideas may also lead parties to act as reform seekers, using policy problems as justification for cherished solutions or long‐held programmatic goals. The modified approach is demonstrated through comparative application to two case studies, attempts at pension reform in Sweden and the United States.     

Participation and Earnings of Older People in Argentina: Nice Work if You Can Get It?

The article explores the potential contribution of better labour market participation among older people in Argentina to address old age poverty and vulnerability. The acute financial crisis in 2001 led to a steep rise in poverty and renewed concerns over the deterioration of old age support. Broadly, two main strategies took shape: to strengthen pension provision for poorer and vulnerable older people, and to improve their labour market participation. Using data from a dedicated survey of older people, the article tests the feasibility and effectiveness of the second strategy through a detailed analysis of the labour market participation and earnings of older people in Argentina.     

Do Social Protection Transfers Reduce Poverty and Vulnerability to Poverty in Pakistan? Household Level Evidence from Punjab

Empirical studies in different developing countries have investigated the impact of social protection (SP) on ex-post poverty; however, few studies analysed the impact of SP on ex-ante vulnerability to poverty (VtP). This paper contributes to the literature by evaluating the impact of SP on vulnerability to poverty (VtP) and poverty rates among households in the Punjab province of Pakistan. A hierarchical modelling approach is used to analyse the Multiple Indicator Cluster Survey (MICS-2011) data of about 90,000 households. Matching methods and simultaneous endogenous switching regression are used to control for potential selection bias and estimate average treatment effects. Our results show that SP has a positive impact in reducing household poverty and VtP, but this impact is mainly driven by a short-term flood relief cash transfer programme, pension of government employees and households’ regular purchase from utility store network.     

Redefining Who’s ‘In’ and Who’s ‘Out’: Explaining Preferences for Redistribution in Bolivia

How does welfare state expansion reconfigure political coalitions? This paper challenges traditional accounts that pit social policy ‘insiders’, who univocally oppose policy expansion, against ‘outsiders’ who favour it. It argues that labour market vulnerability and partisan cues can play a critical role in shaping the preferences of both insiders and outsiders, and thus produce new pro-expansion coalitions. To test this claim, it employs historical analysis of key social insurance configurations in Bolivia over the last 30 years, as well as an original survey carried out in Bolivia following that nation’s 2007 extension of a noncontributory national minimum pension.     

A Critique of the Use of Path Dependency in Policy Studies

Path dependency is an important notion in diachronic approaches to understanding social and political processes. The first section of this paper examines the application of path dependency to policy studies; the advantages of the concept in understanding policy development are highlighted by examples from pension policy and social housing policy in the UK, and the EU budget. The next section considers several criticisms of path dependency: (1) it is a fashionable label for the intuition that 'history matters' without a clear and convincing account of decision-making over time; (2) it explains only stability and not change; (3) its normative implications are confused and mostly left unexplored. The final section concludes that path dependency, despite being theoretically inchoate and difficult to operationalize empirically, is a valid and useful concept for policy studies. However, its proper application demands sensitivity from scholars to other temporal dynamics that may operate in policy development.     

Policy guidelines for collective bargaining and family planning

The benfits of establishing family planning through collective bargaining to both labor and management are discussed. Until workers can be convinced that their children will receive health care, education and employment, and that they will be economically secure in old age, it is difficult to convince them of the many benefits of child spacing and small family size. In 1953, it was calculated by management in a Japanese steel factory that about 70% of all acidents could be attributable to difficulties in the private lives of employees. In order to ease problems in the home, collective agreements were initiated by management in the Nippon Express Company to provide family planning services. Labor agreed as long as the workers were to share in the economic awards which came from participation. Costs of implementing the family planning programs were fully offset by the decrease in expenditure on family allowances, confinement, nursing, and so on. In India some ten estates began a program in which a certain amount of money is paid into an account for every month that a woman does not become pregnant. If the woman becomes pregnant, she forfeits a substantial amount of the fund. This money comes directly from the funds which would normally have to be set aside to provide for maternity and child support programs. Certain guidelines are presented in the paper to outline the areas of responsibility of labor and management in the provision of family planning services. Among the many possibilities mentioned is the idea that both labor and management could look into the conceivability of plowing back a portion of whatever savings are accrued by management into a pension scheme to compensate workers for the loss of labor caused by having fewer children than were previously anticipated.