scholarly journals A model for the pension system in Mexico: diagnosis and recommendations

2014 ◽  
Vol 14 (1) ◽  
pp. 76-112 ◽  
Author(s):  
JAVIER ALONSO ◽  
CARMEN HOYO ◽  
DAVID TUESTA
Keyword(s):  
Pension System ◽  
High Rate ◽  
Economic Forecast ◽  
Retirement Savings ◽  
Defined Contribution ◽  
Projection Model ◽  
Employment History ◽  
Coverage Rates ◽  
Low Coverage

AbstractThe reform of the pension system of the Mexican Social Security Institute (IMSS) in 1997, limited the growing fiscal cost of the previous pay-as-you-go scheme. Sixteen years on from its creation, the Retirement Savings System (SAR) has had favourable macroeconomic effects for Mexico, as it has significantly increased financial savings and encouraged the development of local financial markets.However, the employment and pension coverage has not developed as hoped, due to the high rate of informality in the labour market. In addition, the replacement rates (RR) forecast for old-age pensions from the defined-contribution scheme will be low, due to problems exogenous to the pension system, such as low contribution rates and low contribution densities. The main objective of this study is to develop a macroeconomic and actuarial projection model to simulate the expected coverage and RR for the period 2012–2050, within the framework of a demographic and economic forecast that will allow a detailed diagnosis of the current conditions of the pension system. The results reveal the unpromising scenario that the pension system has and will continue to have in the long term, with limited improvements in coverage rates. The possibility of obtaining adequate pensions will be restricted to those who have socioeconomic conditions with a long employment history, who can thus make contributions to their individual accounts.Taking into account this baseline projection scenario, we simulate the expected effects of applying a set of proposals with the aim of tackling the main problems, such as the low coverage, low RR, and low level of participation by young people in the system.

scholarly journals Contribution volatility and public pension reform

2017 ◽  
Vol 17 (4) ◽  
pp. 513-533 ◽  
Author(s):  
TRAVIS ST. CLAIR ◽  
JUAN PABLO MARTINEZ GUZMAN
Keyword(s):  
Local Governments ◽  
Pension System ◽  
Pension Reform ◽  
Pension Plans ◽  
Fiscal Sustainability ◽  
Economic Downturn ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Unfunded Liabilities

AbstractIn the wake of the economic downturn of 2008–2009, researchers and policymakers have focused considerable attention on the extent of unfunded liabilities in US public sector pension plans and the implications for the long term fiscal sustainability of state and local governments. In response to the growth in liabilities, many states have introduced legislation that cuts back on defined benefit (DB) plan commitments, in some cases even shifting the pension system from a DB to a defined contribution or hybrid plan. This paper explores the factors that have led states to engage in pension reform, focusing particular attention on one factor that has only recently gained attention in the research literature: contribution volatility. While unfunded liabilities have significant long-term solvency implications, in the short term fluctuations in the amount of required contributions pose substantial difficulties for the ability of plan sponsors to balance budgets and engage in strategic planning. We begin by quantifying the volatility in the required contributions US states were expected to make between 2001 and 2013 and comparing the volatility of pension spending to other relevant tax and spending measures. Next, we describe the various types of pension reforms that states have implemented and examine the fiscal pressures facing those states that have engaged in reform. States with greater fluctuations in their required payments have been more likely to reduce benefits and increase employee contributions; they have also been more likely to institute these reforms sooner.

LIFE CARE ANNUITIES (LCA) EMBEDDED IN A NOTIONAL DEFINED CONTRIBUTION (NDC) FRAMEWORK

2016 ◽  
Vol 46 (2) ◽  
pp. 331-363 ◽  
Author(s):  
Javier Pla-Porcel ◽  
Manuel Ventura-Marco ◽  
Carlos Vidal-Meliá
Keyword(s):  
Pension System ◽  
Incidence Rates ◽  
Fixed Cost ◽  
Defined Contribution ◽  
Life Care ◽  
Term Care ◽  
Retirement Pension ◽  
Proposed Model ◽  
Notional Defined Contribution

AbstractThis paper examines the possibility of embedding public long-term care (LTC) insurance within the retirement pension system, i.e. introducing life care annuities into a notional defined contribution framework. To do this, we develop a multistate overlapping generations model that includes the so-called survivor dividend and give special attention to the assumptions made about mortality rates for dependent persons and LTC incidence rates, which largely determine the contribution rate assigned to LTC. The proposed model could be of interest to policymakers because it could be implemented without too much difficulty, it would universalize LTC coverage with a “fixed” cost, and it would discourage politicians from making promises about future LTC benefits without the necessary funding support.

Further Reform of China’s Pension System: A Realistic Alternative Option to Fully Funded Individual Accounts

2007 ◽  
Vol 6 (2) ◽  
pp. 112-135
Author(s):  
Wei Zhang
Keyword(s):  
Capital Market ◽  
Pension System ◽  
Defined Contribution ◽  
Management Skills ◽  
Pension Insurance ◽  
Individual Account ◽  
System A ◽  
Financial Difficulties ◽  
The Individual

China's newly established three-pillar pension system consists of: basic pension; fully funded individual account; and voluntary commercial pension insurance. The second component faces immense financial difficulties caused by transitional costs in the short term and demographic changes in the long term. In addition, the inefficiency of the current capital market and the lack of fund management skills mean that these financial problems are unlikely to be solved within the existing framework of the fully funded individual account. This paper suggests another option—changing the fully funded individual account to a notional defined contribution individual account that operates on a pay-as-you-go basis. This change will keep the advantages of the individual account and avoid the huge risks caused by China's immature capital market.

scholarly journals Automatic enrollment and employer match: an experiment with the choice of pension plans

2020 ◽  
Vol 27 (3) ◽  
pp. 281-299
Author(s):  
Antonio Gualberto Pereira ◽  
Luís Eduardo Afonso
Keyword(s):  
Pension System ◽  
Pension Plan ◽  
The United States ◽  
Pension Plans ◽  
Low Risk ◽  
Control Group ◽  
Retirement Savings ◽  
Defined Contribution ◽  
Content Type ◽  
Treatment Groups

PurposeThe purpose of this study is to identify arrangements of fully funded defined contribution (FF-DC) pension plans associated with the continuity of retirement savings.Design/methodology/approachThe authors adopted an experimental design composed of a control group and two treatment groups. In all groups, individuals made decisions throughout nine periods: five during the working period and four at the postretirement stage. The authors asked participants if they wanted to join a pension plan, and which plan. The authors offered three plans with different risk profiles: plan 1 (high risk), plan 2 (moderate) and plan 3 (low risk) and one risk-free plan, plan 4. In treatment groups 1 and 2, there was an automatic enrollment of the participants in the default plan (moderate risk), and in the following periods they had to decide whether to continue contributing, and in this case, to which plan, with a defined percentage.FindingsIn treatment scenarios, participants chose the riskiest plan in all periods of the experiment, and most of them chose the risk-free plan in period 5. These findings suggest that pension plans with automatic enrollment, employer matching and low risk foster the continuation of retirement savings.Research limitations/implicationsThe research has as limitation the fact that the sample is not representative of the population and therefore does not allow generalizations. This is because the authors use social media ads to prospect respondents.Practical implicationsThe research's findings can be relevant for the design of public policies for private pension plans, suggesting that compulsory automatic enrollment can be used as default in plans offered by the employers. The results encourage the inclusion of behavioral elements in the design of the pension system, paying attention to the nudges. In this sense, it is possible to increase participation in the pension plan and develop low cost programs to increase the amount accumulated by people before retirement.Social implicationsDecision-making architecture, such as automatic enrollment, can improve individuals' retirement decisions, affecting savings and welfare in the long run.Originality/valueAlthough the effect of pension plan designs is widely studied in other countries, such as the United States and United Kingdom, the authors are unaware of a national empirical research that seeks to understand how different arrangements affect an individual choice through an experiment.

scholarly journals Funded pensions under the conditions of consistently low and negative interest rates

POPULATION ◽  
2019 ◽  
Vol 22 (4) ◽  
pp. 51-61
Author(s):  
Tatiana Kulikova
Keyword(s):  
Interest Rates ◽  
Sovereign Debt ◽  
Large Scale ◽  
Pension System ◽  
Developed Countries ◽  
High Rate ◽  
Retirement Savings ◽  
Negative Interest Rates ◽  
Funded Pensions ◽  
State Pension

developed countries sovereign bonds yields are going down, and this trend has been going on for a few decades already. Currently, in most countries whose sovereign debt is considered safe even long-term government bonds' nominal yields are close to zero (or even negative), and their real (i.e. inflation-adjusted) yields are even lower. This means that today there are virtually no safe assets in which pension funds could invest their clients' retirement savings with reasonably high rate of return. Therefore pensions funds in order to provide even barely satisfactory returns to their clients turn to riskier investment strategies. As a result, funded pensions are no longer a reliable financial protection for a persons' life after retirement; rather, it is just another type of speculative assets, which in case of good luck may bring a good return sufficient for a comfortable life after retirement, but in case of bad luck in investment or in case of a large-scale financial crisis, a significant part of the person's retirement savings will be lost. In this case, if the funded component constitutes a large part of the person's pension benefits structure, such person may end up without enough money for mere survival. Such situation is unacceptable for pension system, so state pension system should be of the pay-as-you-go (PAYG) type, while funded pensions can only be a voluntary supplement to people's PAYG pensions.

Behaviour, choice, and British pension policy

2016 ◽  
Author(s):  
Gordon L. Clark
Keyword(s):  
Service Sector ◽  
Pension System ◽  
Retirement Savings ◽  
Occupational Pension ◽  
Pension Policy ◽  
Public And Private ◽  
Policy Regime ◽  
The Future ◽  
Pension Saving

Over the past decade, the British pension system has been turned upside-down. Once lauded as a viable, long-term mix of public and private institutions, each element has been challenged as to its efficacy. Notably, private sector occupational pensions have been discounted by employers, just as ‘mis-selling’ scandals in the financial service sector have eroded trust in long-term savings products. Lord Turner’s model for the future was influenced by the behavioural revolution in cognitive science and behavioural psychology. In this paper, the key elements of the behavioural revolution are identified and linked to new forms of British occupational pension saving. While supportive of this research programme, there remain significant shortcomings. The penultimate section of the paper shifts attention to the Chancellor’s budget announcement prior to the 2015 general election providing individuals access to their retirement savings. In conclusion, implications are drawn for understanding the future of the structured-choice pension policy regime.

scholarly journals Demographic aging of Polish society and its effects from the point of view of pension finance

2019 ◽  
Vol 7 ◽  
pp. 145
Author(s):  
Maciej Aleksander Raszewski ◽  
Teresa H. Bednarczyk
Keyword(s):  
Pension System ◽  
Point Of View ◽  
Defined Contribution ◽  
Replacement Rate ◽  
Main Research ◽  
Poverty Threshold ◽  
Demographic Aging ◽  
Polish Society ◽  
Theoretical Considerations

<p><strong>Purpose</strong> - The aim of the study was to assess the effects of introducing the formula of defined contribution, as analyzed from the perspective of pension adequacy in Poland.</p><p><strong>Methodology</strong> - The main research methods employed included literature studies, theoretical considerations, and an empirical analysis of statistical data.</p><p><strong>Findings</strong> - The Polish pension system may be closer to balancing, but at the expense of lowering the replacement rate, which under the current conditions may even fall below the poverty threshold. Extending the universal retirement age may partly improve the financial situation of future pensioners, especially women.</p><p><strong>Originality/Value</strong> - In conclusion, it was observed that the legislators’ excessive preoccupation with maintaining long-term financial sustainability is not conducive to the achievement of other important goals of the pension system, such as ensuring the adequacy of pensions and preventing elderly people from falling into poverty. In light of the above, further reforms may still be required.</p>

Overview of the Issue

2002 ◽  
Vol 1 (3) ◽  
pp. 193-195
Author(s):  
JEFFREY BROWN ◽  
STEVEN HABERMAN ◽  
MOSHE MILEVSKY ◽  
MIKE ORSZAG
Keyword(s):  
Pension System ◽  
Focal Point ◽  
Policy Issue ◽  
University Of Pennsylvania ◽  
First Year ◽  
Retirement Savings ◽  
Defined Contribution ◽  
Investment Funds ◽  
South Wales ◽  
The World

This is the final issue of the first volume of the Journal of Pension Economics and Finance. We are pleased that the Journal has had a very successful first year, both in terms of the quality of submissions and in terms of building up an extensive and high quality subscription base. We will report in more detail on our first year as well as our plans for the future in the first issue of the second volume.The four articles in this issue span a broad range of topics. The first article is by David McCarthy (Oxford University, Institute of Ageing), Olivia Mitchell (University of Pennsylvania, Pension Research Council) and John Piggott (University of New South Wales, Centre for Pensions and Superannuation) who have written a paper entitled: Asset rich and cash poor: retirement provision and housing policy in Singapore.As mandatory defined contribution systems are increasingly adopted around the world, the experience in Singapore is particularly relevant in that its Central Provident Fund (CPF) is one of the oldest major international examples of a mandatory defined contribution pension system. With funds representing roughly 60% of Singapore's GDP, the CPF is also one of the most prominent publicly managed investment funds in the world.The particular focal point of the McCarthy et al. paper is the effect of rules in Singapore which allow individuals to use their accumulated funds to pay for housing. The use of retirement savings vehicles for approved purposes, such as medical care, education and unemployment, is an important policy issue, with most countries continuing to have strict prohibitions on drawing funds prior to retirement.

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