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Global Patterns of Pension Provision
Robert Palacios, Head, Pensions Team World Bank
Core Pension Course
Washington DC, March 2013
1689 1889 1982 Today
Pension evolution (one version)
THE RISE OF DB SCHEMES IN 1935
“…the old age pensions he called for
came to be financed with wage based
taxes was an accident.”
THE RISE OF DB SCHEMES IN 1975
THE RISE OF DB SCHEMES IN 2012
Life cycle of PAYGO scheme
6
-30
-20
-10
0
10
20
30
40
50
60
0 0.05 0.1 0.15 0.2
elderly/workers
su
rplu
s/r
eve
nu
es
OECD countries at end of the life-cycle
7
0 50 100 150 200 250 300
Switzerland
USA
New Zealand
Germany
Denmark
UK
Finland
Sweden
Italy
Unfunded pension liabilities as share of GDP (retirees only)
Source: Beltrametti and De la Valle (2011)
Developing country IPDs
8
0
100
200
300
400
500
600
0 2 4 6 8 10 12 14 16
Un
fun
de
d P
en
sio
n L
Iab
ilitie
s a
s %
of G
DP
Pension spending as % of GDP
Aging and pension spending
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Parametric and systemic reforms*
Parametric
Raising effective retirement ages and linking
with longevity
Raising contribution rates
Reducing future accrual rates and taking into
account 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
1 2
3
6 7
8
12
14 15
17
21
23 24
27 28
29 28
27 28
0
5
10
15
20
25
30
35
1980 1988 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2011 2012
Nu
mb
er
of C
ou
ntr
ies
Chile
Peru Uruguay
Mexico
Bolivia
El Salvador
Hungary Kazakhstan
Poland
Sweden
Hong Kong
Costa Rica
Bulgaria
Croatia
Estonia
Nigeria Slovakia
United Kingdom
Argentina
Australia
Dom. Rep. Kosovo
Romania
Macedonia
Argentina closed
Hungary closed
Czech Republic
THE RISE OF DC SCHEMES: FROM SANTIAGO TO PRAGUE
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Share of benefit from DC
Colombia Costa Rica
0
0
0.25
0.5
0.75
1
0.5 1 1.5 2 2.5 3
Private DC
Minimum pension
0
0.25
0.5
0.75
1
0 0.5 1 1.5 2 2.5 3
Private DC
Public DB scheme
Proportion of benefit from private DC vs public DB
Low income Low income High income High income
DC schemes in 2012
13
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Mandated pensions today
Publicly-
managed DB,
PAYG
43%
Publicly-
managed DC
7%
Public PAYG DB
+ Private funded DC
18%
Publicly- managed
partially funded DB
31%
Privately-
Managed, funded DC
4%
Note: Select countries: only national contributory schemes included
But most workers not covered…
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Coverage, per cent
(number of countries)
80 to 100 (15)
60 to 80 (21)
40 to 60 (15)
20 to 40 (26)
0 to 20 (37)
Contributory scheme coverage
16
y = 0.0002e1.8464x R² = 0.7712
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2.0 2.5 3.0 3.5 4.0 4.5 5.0
Active
me
mb
ers
(%
Wo
rkin
g A
ge
Po
pu
lation
)
Log Income per capita
Active coverage vs Income per capita
Elderly coverage
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RETURN OF SOCIAL PENSIONS
MATCHING CONTRIBUTIONS
Countries attempting
coverage expansion by
matching contributions of
informal sector workers:
China, Colombia, India,
Mexico, Peru, Thailand,
Turkey, Vietnam
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Summary and looking forward
For a century, public DB plans spread across the globe and dominated pension provision but…
Unfunded liabilities are catching up with maturing systems as the demographic transition unfolds resulting in cuts
In the last two decades, prefunding and especially DC plans has taken on greater role raising new issues of costs, investments, payouts and supervision
Coverage has emerged as the key issue for most low and middle income countries with policy discussion centered on the potential role of social pensions and innovative ways of incorporating the informal sector workforce
What will younger countries learn from the experience of the older countries?
Thank you!
See us at
www.worldbank.org/pensions
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