Front Matter
Author:
Mr. Benedict J. Clements
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,
Mr. David Coady
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Frank Eich
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Mr. Sanjeev Gupta
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Mr. Alvar Kangur
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Baoping Shang
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Mauricio Soto
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Language:
English
Keywords:
OP; pension; emerging market economy; retirement age; economy; IMF staff estimate; pension system; pension spending; eligibility rule; old-age dependency ratio; replacement rate; Pension spending; Pensions; Aging; Pension reform; Retirement; Europe; Eastern Europe; Africa
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Abstract

Pension reform is high on the policy agenda of many advanced and emerging market economies. In advanced economies the challenge is generally to contain future increases in public pension spending as the population ages. In emerging market economies, the challenges are often different. Where pension coverage is extensive, the issues are similar to those in advanced economies. Where pension coverage is low, the key challenge will be to expand coverage in a fiscally sustainable manner. This volume examines the outlook for public pension spending over the coming decades and the options for reform in 52 advanced and emerging market economies.

© 2012 International Monetary Fund

Cataloging-in-Publication Data

Joint Bank-Fund Library

The challenge of public pension reform in advanced and emerging market economies / Benedict Clements … [et al.] – Washington, D.C. : International Monetary Fund, 2012.

p. ; cm.

Includes bibliographical references and index.

ISBN 9781616354138

1. Pensions. 2. Pensions – Developed countries. 3. Pensions – Developing countries. I. Clements, Benedict J. II. International Monetary Fund.

HD7091.C53 2012

Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries.

Please send orders to:

International Monetary Fund, Publication Services

P.O. Box 92780, Washington, DC 20090, U.S.A.

Tel.: (202) 623-7430 Fax: (202) 623-7201

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Contents

  • Preface

  • Acronyms

  • Country Abbreviations

  • 1. Overview

  • 2. Overview of the Current Pension Landscape

    • Public Pension Systems Include Old-Age, Survivor, and Disability Benefits

  • 3. Historical Trends in Public Pension Expenditures

    • Pension Spending Has Risen in Advanced Economies, Albeit at a Slower Pace Recently

    • Public Pension Spending Has Also Increased in Emerging Market Economies, but from a Lower Base

  • 4. Recent Pension Reform Initiatives

    • In Advanced Economies Reform Was Mostly Parametric

    • The Crisis Slowed the Transition to Funded Pensions in Emerging Europe

    • Other Emerging Market Economies

  • 5. The Outlook for Public Pension Spending

    • Projected Increases in Pension Spending Are Substantial in Many Advanced and Emerging Market Economies

    • Enacted Reforms Hold Down the Impact of Population Aging on Spending

    • Numerous Risks to the Projections

  • 6. Considerations for Pension Reform

    • Fiscal Consolidation

    • Equity

    • Economic Growth

  • 7. Pension Reform Options

    • Most Advanced Economies Face the Double Challenge of High Debt and Rising Age-Related Spending

    • Gradually Raising the Statutory Retirement Age Is an Attractive Reform Option

    • Increasing Revenues Could Also Help Offset Increases in Pension Spending

    • Emerging Europe Should Start by Placing Public Pensions on a Sound Financial Footing

    • Increasing Pension Coverage in an Affordable Way Is a Key Challenge in Emerging Market Economies outside Europe

  • 8. Summary and Concluding Comments

    • Summary of Issues and Policy Recommendations

  • Appendix 1: Public Pension Expenditure Identity

  • Appendix 2: Disability Pensions: Design and Reform Options

  • Appendix 3: Poverty Impact of Lower Replacement Rates in Selected Countries

  • Appendix 4: Public Pension Systems and Labor Market Incentives

  • Appendix 5: Additional Pension Reform Data

  • References

  • Index

  • Boxes

    • 2.1. Pension Systems: Pay-As-You-Go versus Funded

    • 5.1. Projecting Public Pension Spending

    • 5.2. Key Demographic Trends up to 2050 and Uncertainty

    • 6.1. Pension Systems and Generational Imbalances

    • 7.1. The Retirement Age and Unemployment

    • A1.1. Public Pension Expenditure Identity

  • Figures

    • 2.1. Composition of Public Pension Spending, 2007

    • 2.2. Characteristics of Mandatory Pension Plans

    • 3.1. Old-Age Dependency Ratio in Advanced and Emerging Market Economies

    • 3.2. Evolution of Public Pension Expenditures in Advanced Economies

    • 3.3. Evolution of Public Pension Expenditures in Emerging Market Economies

    • 3.4. Pension Spending, Replacement Rates, and Aging, 2010

    • 5.1. Increase in Pension Spending, 2010–30

    • 5.2. Projected Evolution of Public Pension Expenditures, 2010–30

    • 5.3. Cumulative Cost of Pension Spending Increases

    • 5.4. Current and Projected Replacement Rates and Pension Eligibility in Advanced Economies

    • 5.5. Funding of Private Defined Benefit Pension Plans, 2009

    • 6.1. Projected Changes in Pension Replacement Rates and At-Risk Poverty Rates of the Elderly, 2010–50

    • 7.1. Pension Spending in 2010 and Age-Related Spending Increases, 2010–30

    • 7.2. Trade-offs Across Reform Options to Stabilize Spending, 2010–30

    • 7.3. Increase in Male Life Expectancy at Age 60 versus Enacted Increase in Pensionable Age for Men, 2010–30

    • 7.4. Payroll Tax Yield in Advanced Economies, 2008

    • 7.5. Pension Coverage (Pensioners to Population above Retirement Age) in Emerging Market Economies

    • 7.6. Impact of Increasing Pension Coverage in Emerging Market Economies, 2010–30

    • A2.1. Public Disability Pension Spending, 1980–2007

    • A2.2. Average Disability Pension Spending by Type of Program, 2007

    • A4.1. Labor Force Participation, Males 60–64

    • A4.2. Social Security Incentives to Retire: Implicit Taxes and Age of Retirement, Men in Germany, 1970–2010

  • Tables

    • 7.1. Recent Pension Policy in Eastern Europe

    • 8.1. Summary of Pension Issues and Potential Reform Options

    • A5.1. Mandatory Pension Plans

    • A5.2. Public Pension Expenditures, 1960–2010

    • A5.3. Decomposition of Pension Spending Growth, 1970–2030

    • A5.4. Public Pension Expenditures, 2010–2050

    • A5.5. Impact of Pension Reform on Private Savings

    • A5.6. Pension Ages and Actuarial Adjustments, 2010

    • A5.7. Pension Spending Data Sources

    • A5.8. Pensionable Ages, 1970–2030

Preface

Pension reform is high on the policy agenda of many advanced and emerging market economies. In advanced economies the challenge is generally to contain future increases in public pension spending as the population ages. Meeting this challenge has become even more important in the wake of the Great Recession, which has left many countries with elevated public debt levels. In emerging market economies, the challenges are often different. Where pension coverage is extensive—for example, in emerging Europe—the issues are similar to those in advanced economies. Where pension coverage is low, the key challenge will be to expand coverage in a fiscally sustainable manner.

This Occasional Paper by the IMF’s Fiscal Affairs Department aims to assist IMF member countries in their efforts to meet these challenges. It does so by examining the current pension landscape and by analyzing the outlook for public pension spending over the coming decades in 53 advanced and emerging market economies. Options for reform are presented based on this analysis.

This Occasional Paper builds on “The Challenge of Public Pension Reform in Advanced and Emerging Economies,” a paper prepared by the IMF’s Fiscal Affairs Department and presented to the IMF’s Executive Board in January 2012. This volume presents updated projections based on the latest country-specific information available. In addition, it provides a more detailed discussion of the demographic challenges facing countries.

Sanjeev Gupta of the Fiscal Affairs Department directed the work. A staff team led by Benedict Clements and David Coady, and including Frank Eich, Alvar Kangur, Baoping Shang, and Mauricio Soto, prepared the manuscript. Contributions were also received from Javier Kapsoli, Kenichiro Kashiwase, Masahiro Nozaki, and Vimal Thakoor. Special thanks are due to Lilla Nemeth and Matias Antonio for their research support, Jeffrey Pichocki and Mileva Radisavljevic for administrative assistance, and Cathy Gagnet and Joanne Johnson of the External Relations Department for editing and coordinating production of this publication.

Acronyms

ADB

Asian Development Bank
DB

defined benefit
DC

defined contribution
DG ECFIN

European Commission Directorate General for Economic and Financial Affairs
EC

European Commission
ESSPROS

European System of Integrated Social Protection Statistics
ILO

International Labour Organization
LFPR

labor force participation rate
NDC

notional defined contribution
NPV

net present value
OECD

Organisation for Economic Co-operation and Development
PDV

present discounted value
PPF

Pension Protection Fund

Country Abbreviations

Owing to space constraints the abbreviations listed below have been used in the figures in this Occasional Paper.

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Cover The Challenge of Public Pension Reform in Advanced and Emerging Economies
The Challenge of Public Pension Reform in Advanced and Emerging Economies
ISBN:
9781616354138
ISSN:
0251-6365
Publication Date:
25 Jan 2013
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781616354138.084
Pages:
86

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