Transcript Pension Indicators

Going
backwards?
Analysis of the reversal of systemic
pension reforms in Central and
Eastern Europe
Edward Whitehouse
Head of Pension Policy Analysis
Social Policy division
OECD
Type of public
scheme
DC contribution
rate
Reduction in
earnings-related
benefit
Estonia
Basic + points
4+2%
20%
Hungary
DB
68%
26%
NDC
7.3%
37%
Points
9%
50%
NDC
210%
44%
Basic + DB
3.55.5%
52%
Poland
Slovak Republic
Latvia
Lithuania
2
Reformed systems: parameters
Switching behaviour
Estonia 2005
100%
Hungary 2000
100%
50%
25%
75%
switch prohibited
75%
men
men
50%
women
25%
women
0%
0%
20
25
30
35
40
45
50
55
60
65
20
25
Poland 1999
30
35
40
45
50
55
60
65
55
60
65
Slovak Republic 2005
100%
75%
50%
25%
75%
switch
prohibited
switch mandatory
100%
50%
25%
men
women
0%
0%
20
25
30
35
40
45
50
55
60
65
20
25
30
35
40
45
50
Reformed systems:
replacement rates
DC
Earnings-related
Basic
DC
1.25
Estonia
Hungary
1
Gross replacement rate
.75
.5
.25
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
DC
0
2
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
DC
Earnings-related
2
Earnings-related
.5
Poland
1
Gross replacement rate
.75
EU-27
average
OECD-34
average
1.25
Slovak Republic
1
Gross replacement rate
.5
.25
1.25
.75
.5
.25
.25
0
.75
0
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
2
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
2
4
Gross replacement rate
1
0
Earnings-related
1.25
Reformed systems:
replacement rates
DC
Earnings-related
DC
1.25
Bulgaria
.75
.5
.25
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
.5
Earnings-related
0
2
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
DC
Basic
2
EU-27
average
OECD-34
average
Earnings-related
1.25
1.25
Romania
Lithuania
1
Gross replacement rate
1
.75
.5
.75
.5
.25
.25
0
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
2
0
.25
.5
.75
1
1.25
1.5
1.75
Individual earnings, proportion of average earnings
2
5
Gross replacement rate
.75
.25
DC
0
Latvia
1
Gross replacement rate
Gross replacement rate
1
0
Earnings-related
1.25
Distributional impact of reform:
Poland
75
Pre-reform
Reduction in
replacement rate
Post-reform
Post-reform
Reduction in
replacement rate
Pre-reform
50
Increase in
replacement rate
25
Gross replacement rate
(per cent)
0
0.75
1
Individual earnings
(multiple of economy-wide average)
1.25
1.5
6
0.5
Switching and reform reversals:
replacement rates
Estonia
Hungary
Poland – men
Poland – women
Slovak Republic
Public
25.9
44.4
23.4
17.6
26.0
Switcher
Private
15.0
31.4
30.2
22.1
31.6
Total
40.9
75.8
53.7
39.7
57.5
Nonswitcher
Public
29.2
60.1
37.4
28.1
51.9
Changes in
pensions (%)
Total
Public
pension
pension
-28.5
+13.1
-20.8
+35.2
-30.3
+59.7
-29.3
+59.7
-9.7
+100.0
7
Replacement rates (%)
Poland: impact of changes on
replacement rate
Gross replacement rate, per cent
60
50
Total
53.7%
Men
Total
45.2%
40
Women
Total
39.7%
30
Total
33.6%
20
0
Before
After
Before
After
8
10
Switching and reform reversals:
replacement rates
 Results based on OECD standard assumptions
 2% earnings growth
 3.5% net investment return
 both in real terms
 What matters for replacement rate from defined-contribution
schemes is difference between earnings growth and investment
return
 Calculate neutral rate of return that equalises replacement rates
 Wage growth – 5% for Estonia
 Wage growth – 1.6% for Hungary
 Wage growth + 0.6% for Slovak Republic
9
 Wage growth – 2.0% M, – 2.3% F for Poland
Long-term financial projections
Per cent of GDP
Per cent of GDP
17.5
Estonia
17.5
15
15
12.5
12.5
10
10
Private
7.5
7.5
Public
Private
5
5
2.5
Hungary
Public
2.5
0
0
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Per cent of GDP
17.5
Per cent of GDP
17.5
Poland
15
15
12.5
12.5
Slovak Republic
Private
Private
10
7.5
10
7.5
Public
5
5
2.5
2.5
0
0
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
10
Public
Long-term financial projections
Per cent of GDP
17.5
Bulgaria
Per cent of GDP
17.5
15
15
12.5
Private
12.5
10
10
7.5
7.5
5
Latvia
Private
5
Public
Public
2.5
2.5
0
0
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Per cent of GDP
17.5
Per cent of GDP
17.5
Lithuania
Private
15
15
12.5
12.5
Private
10
10
7.5
7.5
5
Romania
Public
5
Public
2.5
0
0
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
2007 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
11
2.5
Conclusions: the OECD vision for
retirement-income provision
 Pension policy is about achieving a balance between
adequacy and sustainability
 A balanced pension system is a good thing
 A mix of public and private provision
 A mix of pay-as-you-go and pre-funding
 A redistributive pension system is a good thing
12
 With fiscal constraints, best to target public benefits on
those most in need