Transcript Pension Reform and ADB Interventions

Pension Systems in Asia-Pacific:
Main Issues and Diagnosis
Presentation by
Michiel Van der Auwera
16 October 2007
Overview
• Socio-economic challenges
• Review of existing pension situation in
Asia
• Way forward
– identifying need for reform
– contribution of multilateral development
banks
2
I . Socio-economic
challenges
1. Ageing population
2. Declining family support for elderly
people
3. Globalization
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1. Ageing population
• Asian population grew from 1.4
billion people in 1950 to 3.7 billion
in 2000
• Demographic transition from high
fertility and mortality rates to low
fertility and mortality rates
4
Demographic dividend
Population (in million)
Demographic change in China
2,000
1,500
65+
1,000
500
0
1950
4
3
1
2
1975
15-64
Demographic
dividend
2000
2025
0-14
2050
Year
5
Rapid ageing …
Old-age dependency ratio
Dependency ratio
(population 65+/population 15-64)
40%
Cambodia
30%
China
20%
Lao PDR
Myanmar
10%
Thailand
0%
2000
2025
2050
Vietnam
Year
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results in increased public
spending on pensions
If the past relationship between
demography and public spending
on old-age pensions continue:
– Expenditure of national income devoted to
pensions in Asia, excluding China, will rise
from 2% in 1990 to 10% in 2050
– Expenditure of national income devoted to
pensions in China will rise from 3% in 1990
to over 13% in 2050
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2. Declining family support
for elderly …
• Traditionally, Asian families provide
support for the elderly relatives
• Increased mobility from rural to urban
areas is weakening traditional support
• Changing family structure: declining
birth rates, increasing number of single
head households
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needs to be supplemented
by formal mechanisms
• Pure market solutions (individual savings)
work to some extent, but often fail
– Shortsighted behavior, leading to insufficient
saving when young
– Lack of reliable savings instruments
• Governments interventions are required
– Mandatory pensions plans, means-tested
assistance
– Regulation and supervision, information, …
9
3. Globalization …
• Increased integration of markets and
growing mobility across the world
• Labor market policies need to balance
between addressing inequality and
efficiency
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requires adjusted pension
design
• Public programs, including pension
schemes, will have to be adjusted
• Pension designed to accommodate
mobility of the labor force, not only
between public and private sector, but
also across states
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II. Pension systems in Asia
Mandatory pension systems for the private sector in Asia & Pacific
Provident funds
Defined contribution
schemes
Defined benefit
schemes in market
economies
Pension schemes in
transition economies
Indonesia
India (partial)
Malaysia
Nepal
Pacific Islands
Singapore
Sri Lanka
India (partial)
Japan
South Korea
Pakistan
Philippines
Azerbaijan (DB)
PRC (DB + DCfunded)
Kazakhstan (DCfunded)
Kyrgyz (Notional DC)
Lao PDR (DB)
Mongolia (NDC)
Uzbekistan (DB)
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Vietnam (DB)
Major areas of concern
• DB schemes: fiscal sustainability – link
between contributions and benefits
• Funded schemes: investment policy and
performance
• Overall:
– governance and management of the
pension systems
– limited coverage
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Changing environment for
Asian pension systems
• New requirements
– Increased demand for old-age protection
– Increased formalization
– Increased flexibility
• Existing situation
– Limited coverage
– Need for improved governance
– Need for improved pension design
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III. Way forward
• Objective: pension systems that deliver
adequate and affordable benefits in
sustainable way
• Reform towards multi-pillar pension
systems
• A long-term endeavor!
*
World Bank. 2005. Old-Age Income Support in the Twenty-first Century: An
International Perspective on Pension Systems and Reform (Holzmann, R. and
others)
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Basic goals of pensions
• Reducing or preventing poverty among the
elderly
• Providing adequate retirement income,
maintaining same standard of living,
smoothing of lifetime consumption
• Encourage economic growth through
increased saving
These goals can be addressed by a
multi-pillar pension system
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Multi-pillar pension
system
Other sources of support
informal support, health care, housing,…
“third pillar”
voluntary individual savings accounts
“second pillar”
mandatory individual savings accounts
“first pillar”
mandatory contributory schemes
“zero pillar”
non-contributory schemes
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Interaction between pillars
Example: Finland
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Role of Multilateral
Development Banks
• Raise awareness among policy makers
• Assist in pension reform when support
is required
• Available tools
– TA to prepare reform
– Loan programs to assist in implementation
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ADB pension projects,
1990–2004
Region
DMC
1990–1996
Regional
East and Central
Asia
Mekong
South Asia
Southeast Asia
2000–2004
1 RETA
Kazakhstan
1 loan, 1 PPTA,
4 ADTAs
Kyrgyz Republic
1 PPTA
PRC
1 ADTA
Lao PDR
1 ADTA
Thailand
Pacific
1997–1999
1 ADTA
Cook Islands
1 ADTA
Tonga
1 ADTA
Bangladesh
1 ADTA
1 ADTA
Bhutan
1 ADTA
India
1 ADTA
Pakistan
1 ADTA
Indonesia
1 ADTA
1 ADTA
1 ADTA
1 ADTA
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Pension reform needs
• Following Asian financial crisis focus on
strengthening financial market institutions
• Emerging reform needs
– sustainability of the maturing pension systems
– adequacy and affordability of the pension systems
for the ageing population
• Pension reform in Asia and Pacific is still at
the initial stage
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For More Information
(Michiel Van der Auwera, e-mail:
[email protected])
Web site: www.adb.org