Abstract

© 1997 International Monetary Fund

Copyright

© 1997 International Monetary Fund

Library of Congress Cataloging-in-Publication Data

Mackenzie, G. A. (George A.), 1950–

Pension regimes and saving / G.A. Mackenzie, Philip Gerson, and Alfred Cuevas.

p. cm.—(Occasional paper ; 153)

“September 1997.”

Includes bibliographical references (p.).

ISBN 1-55775-640-6

1. Pension trusts. 2. Old age pensions—Finance. 3. Saving and Investment. 4. Defined benefit pension plans. I. Gerson, Philip R. II. Cuevas, Alfredo. III. International Monetary Fund. IV. Title. V. Series: Occasional paper (International Monetary Fund); no. 153.

HD7105.4.M23 1997

331.25’—dc21

97-33432

CIP

Price: US$15.00 (US$12.00 to full-time faculty members and students at universities and colleges)

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Contents

The following symbols have been used throughout this paper:

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.

Preface

There are few subjects in economics more topical than pensions. Public pension plans around the world are coming under fire for various perceived shortcomings. Pension expenditure has become a major burden on the public finances of many countries, both industrial and middle-income, while the payroll taxes that finance these expenditures are thought to impair the workings of labor markets and to contribute to the high rates of unemployment common among European countries.

Of particular concern to some economists has been the impact on saving and growth of pay-as-you-go public pension plans. Their establishment and expansion are thought to reduce aggregate saving in many economies, essentially because the promise of a pension after retirement encourages plan participants to reduce their voluntary saving. These and other concerns have contributed to the popularity of reforms to privatize public pension plans.

Rather than try to deal with all the facets of pension economics, this paper concentrates on the impact of pension regimes on saving, given its central importance to a country’s growth prospects. It analyzes the conditions under which pension reform can increase a country’s saving rate; it also considers how the development of private retirement plans can be stimulated.

The paper is a revised version of a paper prepared for the Executive Board of the International Monetary Fund. The authors received considerable assistance in its preparation. They would especially like to thank Juan Amieva for preparing the notes on Argentina, Colombia, and Peru, revised versions of which appear in Appendix III. Similarly, they thank Andrew Wolfe for his work on the note on Uruguay. Various colleagues in the IMF provided material on specific countries and helpful comments on the paper’s analytical framework, including Martine Guerguil, George Kopits, and Joaquim Levy. Vito Tanzi, Peter Heller, and Teresa Ter-Minassian offered valuable overall guidance. The authors would also like to thank Scott Anderson for research assistance, and Bee Vichailak, Randa Sab, and Pearl Acquaah for secretarial assistance. Diane Cross of the Fiscal Affairs Department and Elisa Diehl of the External Relations Department edited the paper for publication, and Elisa Diehl coordinated its production.

The opinions expressed in this paper are those of the authors and should not be construed as representing the views of the IMF or of its Executive Directors.

Glossary of Abbreviations

AFORE

Administradoras de Fondos de Ahorro para el Retiro/pension company (Mexico)

AFP

Administradoras de Fondos de Pensiones/pension company (Peru)

CAJANAL

Civil Servants’ Social Security Institute (Colombia)

CPF

Central Provident Fund (Singapore)

CPI

consumer price index

ERISA

Employee Retirement Income Security Act (USA)

FOVISSSTE

mandatory housing-saving fund for state workers (Mexico)

IMSS

Mexican Social Security Institute

INFONAVIT

mandatory housing-saving fund for private sector workers (Mexico)

IPSS

Peruvian Institute of Social Security

IRA

individual retirement account (USA)

ISS

Social Security Institute (Colombia)

ISSSTE

Institute for Social Security and Services for State Workers (Mexico)

IVCM

invalidez, vejez, cesantia en edad avanzada, y muerte (Mexico)

LCH

life-cycle hypothesis

OASDI

Old-Age, Survivors, and Disability Insurance (USA)

ONP

Oficina de Normalizatión Previsional (Peru)

PAYG

pay-as-you-go

PEMEX

Petróleos Mexicanos

PFA

Pension Fund Association (Japan)

RCV

retiro, cesantía, y vejez (Mexico)

RRSP

registered retirement savings plan (Canada)

SAR

Sistema de Ahorro para el Retiro/Individual Retirement Account (Mexico)

SSW

social security wealth

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