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Bibliography

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1

The author would like to thank, without implication, Adrienne Cheasty, Oleh Havrylyshyn, Albert Jaeger, Jorge Márquez-Ruarte, and Tom Wolf for their comments; the desk economists for the Baltics, Russia, and other countries of the former Soviet Union for data and factual contributions; and several colleagues from the World Bank for helpful discussions and information. Excellent research assistance from Alex Keenan is gratefully acknowledged.

3

The parameter γ may also be influenced by factors that are not under full control of policy makers, such as women labor force participation rates.

4

For a detailed discussion of the challenges posed by population aging to pension systems worldwide, see World Bank (1994). Chand and Jaeger (1996) focus on the fiscal effects of aging populations in industrial countries.

5

Defined-contribution plans, by contrast, specify in advance the individuals’ contribution to the plan, but not the benefit. In this case, future benefits will depend on the accumulated contributions and the rates of return on the fund investments. Defined-contribution plans are typically fully funded.

6

For a detailed discussion of the typical problems of large-scale PAYG systems, see Estelle James (1997).

9

Unemployment benefits did not exist under the Soviet system; they were introduced in BRO countries during the transition period, contributing to the high burden of social spending.

10

Some countries do not have a separately identified pension contribution rate; those were computed by taking into account the share of contributions assigned to the pension fund.

11

For a rough comparison (not adjusted for the different tax treatment in BRO countries and western countries), the pension contribution rate in Germany is currently about 20 percent. Under the new pension system introduced in the USSR in 1990, the standard total payroll tax was 26 percent for the employer and 1 percent for employees.

12

During the high inflation period that characterized the beginning of the transition, the lags in collecting payroll taxes also contributed to lower real contributions.

13

In the Kyrgyz Republic, for example, the deficit of the Pension Fund has been growing significantly since 1994, despite the low demographic dependency ratio and sizable transfers from the budget (1.4% of GDP in 1996).

14

Pension benefits include old-age, disability and survivors’ pensions. There are also service (military) and social pensions, the latter for old people who have not met the minimum contribution requirement. Those are typically, but not always, paid out of the general budget.

15

Actuarial provisions would make benefits dependent on the retirement age. In the case of early retirement this would imply that benefits would be reduced in order to offset the longer duration of retirement and the adverse effects of shorter contribution periods on the contribution base. Pension formulae based on actuarial criteria would ensure that the expected present discounted value of net retirement benefits would be the same for all retirement ages.

16

The share of elderly (60 years and older) in the population ranged from 6.2 percent (Tajikistan) to 18.7 percent (Ukraine) in 1990.

17

Information about the number of contributors is only available for a few countries.

18

Data for CEE and industrial countries are for 1995.

19

For a detailed description of the multipillar approach, see World Bank (1994).

20

Another possibility would be to transfer the cost of occupation-based special pensions to enterprises. This measure would be justified on the grounds of equity, since occupation-based pensions represent a subsidy to certain industries and are not a component of social insurance.

21

The usual argument behind the forced saving function is individuals’ myopia with respect to retirement needs.

22

The alternative would be publicly-managed mandatory saving schemes. Although in some countries public management has been adopted successfully (e.g., in Singapore and Malaysia), provident funds typically yield lower rates of return, partly because they tend to invest in government securities.

23

The design of the Swiss pension system, which was largely set up during the period 1946-64, was explicitly guided by the multipillar terminology that has recently been popularized in World Bank publications. See Charles (1993) for a historical sketch of the Swiss system.

24

Flat pensions also prevailed in Estonia from January 1992 until April 1993, when a new law re-introduced pensions based on length of service.

25

In Estonia, the April 1993 law introduced a gradual increase (6 months per year) in the retirement age starting from January 1, 1994 (to 65 years for men and 60 for women). In (continued…) Lithuania the pension age is being raised annually by 4 months (for women) and 2 months (for men) until it reaches 60 years for women and 62 1/2 years for men by 2009. In Kazakhstan the pension age is scheduled to increase by 6 months each year until it reaches 63 years for men and 58 years for women. The Pension Law adopted by Azerbaijan in July 1997 included an increase in the retirement age by 6 months per year between August 1997 and August 2000. In Armenia, the pension age will be raised by one year per year to 65 years for men and 63 years for women by 2002.

26

The pension systems of CEE countries suffer from the same shortcomings observed in BRO countries, but the ratios of public expenditure to GDP tend to be higher, complicating reform efforts. Most CEE countries have already introduced piecemeal reforms in their PAYG systems and several countries have established private pension funds. Pressure for reform is greater in the countries that expect to join the European Monetary Union sooner.

28

For a comprehensive analysis of income distribution issues in transition economies, see Milanovic(1997).

Pension Reform in the Baltics, Russia, and other Countries of the Former Soviet Union (BRO)
Author: International Monetary Fund