scholarly journals Tax Incentives as a Part of Governments’ Applied Mechanisms for the Third Pension Pillar in Estonia, Latvia, and Lithuania

2020 ◽  
Vol 1 (14) ◽  
pp. 146-155
Author(s):  
Evija Dundure ◽  
Biruta Sloka
Keyword(s):  
Pension System ◽  
Tax Incentives ◽  
Pension Funds ◽  
Private Pension ◽  
Pension Scheme ◽  
Pension Systems ◽  
The Third ◽  
Baltic Countries ◽  
Tax Exempt ◽  
The Baltic

The main objective of the improvements to public pension systems is to create a balanced three-pillar pension structure and increase public accountability for pension capital formation. Most pension systems are based on the first two pension system pillars – mandatory contributions in the state compulsory unfunded pension scheme and the state-funded or accumulated pension scheme in pension funds. However, the pension level adequacy has been reached by adding the third pension system pillar - voluntary investments in private pension funds. Governments are private pension system policymakers by defining a legal framework and providing tax incentives for voluntary investments for retirement. In the Baltic countries – Estonia, Latvia, and Lithuania, the third pension pillar is at an early stage of its development, and as such, should be particularly stimulated. This research focuses on the tax incentives utilized by the governments of Estonia, Latvia, and Lithuania and aims to ascertain and compare the effectiveness of the tax incentive policies applied to the third pension pillar by the governments of the three Baltic countries. It questions the effectiveness of the incentive mechanisms the governments of the Baltic countries have chosen, which include involving most of the population in the private pension saving programs. The research methods used are the analysis of scientific publications on the previously conducted research, acts of legislation of Baltic countries, as well as an analytical study of statistical data on the development of voluntary pension fund contributions in Estonia, Latvia, and Lithuania. The research results indicate that the tax incentives are the mechanism to motivate the population to create savings in the third pension pillar in all three Baltic countries. However, Latvia being the country with the highest coverage rate of the third pension pillar has the most unfavorable conditions for creating savings. There are no tax incentives on returns on investment and tax-exempt withdrawals in Latvia, while Estonia and Lithuania have all positions tax-exempt. A more detailed analysis of the tax incentives at the contribution stage explains the underdeveloped third pension pillar in Lithuania, as Lithuanian personal income tax reliefs are targeted at low or medium wages or gross income. The research has highlighted the impact of tax incentives on voluntary savings for retirement in the three Baltic countries, opening a discussion about the effectiveness of governments' applied mechanisms.

Private Pension Funds in Hungary

2005 ◽  
Vol 55 (3) ◽  
pp. 287-315 ◽  
Author(s):  
Ichiro Iwasaki ◽  
Kazuko Sato
Keyword(s):  
Trade Unions ◽  
Pension System ◽  
Pension Reform ◽  
Legal Framework ◽  
Pension Funds ◽  
Negative Influence ◽  
Private Pension ◽  
Pension Scheme ◽  
Special Interest Groups ◽  
Governance Reform

The new pension system launched in Hungary in 1998 is epoch-making for having introduced a mandatory private pension scheme (MPPS). However, the political decision-making on pension reform and the scheme operations have been greatly influenced by conflicts of interests among ministries, political conflicts between parties, and the presence of special interest groups, including trade unions and financial institutions. This situation may have had a certain negative influence on the legal framework of the MPPS and on the management performance of private pension funds. In order for the MPPS to be sustainable in the future and to make insurance beneficiary profits a top priority, the corporate governance reform of pension funds and reinforcement of the monitoring system over them, and political neutralisation of the public pension system are necessary.

scholarly journals The shape of the pension scheme in Poland in the light of the conventional multi-pillar typologies

2019 ◽  
Vol 44 (1) ◽  
pp. 47-65 ◽  
Author(s):  
Tomasz Jedynak
Keyword(s):  
Pension System ◽  
Pension Funds ◽  
Pension Scheme ◽  
Pension Systems ◽  
Reform Implementation ◽  
Four Levels

In recent years, a number of modifications that have a significant impact on the shape of the pension system in Poland are introduced and discussed (e.g. OFE [Open Pension Funds] reform, implementation of the PPK [Employee Capital Plans], introduction of civil pensions, etc.). The result of these changes is that the traditional, three-pillar way of presenting the shape of this system does not reflect its essence any more. On the basis of the typologies of multi-pillar pension systems proposed in the literature, the study propose a new concept for presenting the shape of the general pension system in Poland. It consists of four levels of pension security, distinguished by the criterion of the initiating subject. These levels together form the base and the supplementary part of the pension system.

scholarly journals 8.8. PECULIARITIES OF BUILDING PENSION SYSTEMS IN DEVELOPING COUNTRIES: AN EXAMPLE OF MALAYSIA

2020 ◽  
Author(s):  
С.В. Фрумина
Keyword(s):  
Developing Countries ◽  
Private Sector ◽  
Military Personnel ◽  
Pension System ◽  
Private Pension ◽  
Pension Scheme ◽  
Public Servants ◽  
Pension Systems ◽  
Retirement Accounts ◽  
Pension Schemes

В статье представлена характеристика пенсионной системы Малайзии как одной из развивающихся стран, столкнувшихся с демографическими проблемами. Автор рассматривает устоявшиеся в Малайзии пенсионные схемы: пенсионную схему для государственных служащих, для работников частного сектора, для военнослужащих, для самозанятых граждан и добровольные частные пенсионные схемы. Акцент делается на формировании пенсионных счетов. The article describes the pension system of Malaysia, as one of the developing countries faced with demographic problems. The author considers pension schemes established in Malaysia: a pension scheme for public servants, for private sector employees, for military personnel, for self-employed citizens and voluntary private pension schemes. The emphasis is on the formation of retirement accounts.

scholarly journals PARTICIPATION OF THE POPULATION IN PRIVATE PENSION FUNDS: PROBLEMS AND MOTIVATION

2021 ◽  
Vol 1 (36) ◽  
pp. 515-521
Author(s):  
O. Dymnich ◽  
T. Stetsyuk ◽  
D. Gamankov ◽  
L. Parcheta
Keyword(s):  
Behavioral Finance ◽  
Pension System ◽  
Pension Funds ◽  
Behavioral Theory ◽  
Private Pension ◽  
The Third ◽  
Current State ◽  
Pension Schemes ◽  
Finance Theory

The purpose of this paper is a thorough analysis of the current state of the market of private pension insurance in Ukraine, a description of the main approaches of behavioral theory of finance as well as proposals for their use in domestic practice. The development of the national pension system only possible in case the population considerably participates in Private Pension Funds’ function. This pillar is in many countries the basis of pension systems. Undoubtedly, the PPFs as the third pillar of the Ukrainian pension system is essentially less popular than in foreign countries. However, we can affirm that the last years have become the most productive and effective for PPFs activity. It means that there is an understanding the direction to develop the private pensions system, and, consequently, the amount of attraction of individuals to greater provision at retirement age.  According to scientists, it is advisable to apply for the approaches based on the behavioral finance theory, which has gained its special acumen after the global financial crisis. During the last years, scientists working in the realm of behavioral finance theory have discovered that while people are trying to maximize their personal well-being, there are certain factors that significantly limit their choices. Recognition of the existence of these constraints has significantly changed the understanding of the modern science of the process of adopting individual economic and financial decisions. Especially those relating to long-term consumption and savings, such as: accumulation (accumulation phase) and decumulation (consumption phase) of assets in pension schemes. Thus, all these features of human behavior are successfully used in the world in the elaboration of pension schemes to enhance long-term retirement savings. The article developed scientific and methodological approaches to increase the motivation of people to pension savings in private pension funds on the basis of behavioral theory of finance, which, in turn, allows to justify effective development programs of the third level of the pension system of Ukraine. The analysis of the current state of the private pension market in Ukraine which is carried out in this paper, should result the clear understanding that in the current economic climate, the government’s main efforts to further reform the domestic pension system should focus on third-level pillar based on private pension funds operating under “defined contribution” pension schemes. The main advantage of the participation of private pension funds in the pension system is that they allow to distribute between its three components the risks associated with changes in the demographic situation (to which the solidarity system is most sensitive) and with fluctuations in the economy and capital markets (which has the greatest impact on the savings system). Thereby it allows to make the pension system more financially balanced and stable, which is a prerequisite for the effective functioning of the entire social insurance system of Ukraine.

The transition to a multi-pillar pension system: the inherent socio-economic anomaly

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ishay Wolf ◽  
Jose Maria Caridad y Ocerin
Keyword(s):  
Income Inequality ◽  
Old Age ◽  
Pension System ◽  
Economic Loss ◽  
Pension Scheme ◽  
Total Contribution ◽  
Content Type ◽  
Pension Systems ◽  
High Earning ◽  
Minimum Pension

Purpose This paper aims to analytically show that in an over-lapping-generation (OLG) model, low earning cohorts bear unwanted risk and absorb higher economic cost than high earning cohorts do. Design/methodology/approach This paper aims to consider the individual's risk appetite, using a simple utility function, based on consumptions and discount rates in each period. This paper calibrates the model according to teh Israeli pension system as a representative of a small open developed organization for economic cooperation and development country. Israel is considered as unique case study in the pension landscape, as it implements almost pure defined contribution pension scheme with continuous trend of pension market capitalization (Giorno and Jacques, 2016). Hence, this study finds Israel suitable for examining the theoretical mix of pension scheme. That model enables exploring combined solutions for adequate old age benefits, involving the first and the second pension pillars, under fiscal constraints. Findings It comes out that for risk-averse individuals, the optimal degree of funding is negatively correlated to asset returns' volatility and positively correlated to earning decile level. The neglect of risk and individual's current earning level will thus overstate the contribution level and funded percentage from total contributions. Moreover, even in an economy with minimum government intervention, and highly developed private pension fund with high average of rate of return, the authors find it is optimal that the pension system contains a sizeable unfunded pillar. This paper innovates by revealing a socio-economic anomaly in design of mix pension systems in favor of high earning cohorts on the expense of economic loss of low earning cohorts. Practical implications The model presented in this paper could be implemented in countries with mix pension systems, as an alternative to public social transfers or means tested, alleviating poverty and inequality in old age. Additionally, this model could raise the public awareness of the financial sustainability of the unfunded pay-as-you-go pillar to diversify financial risk in pension systems, especially for low earning cohort in society. Social implications One area of research that is particularly relevant in this context concerns the issue of alleviating poverty and income inequality. It is often stressed that the prevention of old age poverty is among the central targets of well-designed pension system (Holzmann and Hinz, 2005). The conceptualization of minimum pension guarantee used in this composition allows to clearly capturing the notion of such a poverty and social targets as an integral part of the pension system rolls. Originality/value This paper innovates by revealing a socio-economic anomaly in design of mix pension systems in favor of high earning cohorts on the expense of economic loss of low earning cohorts. That comes to realize through the level of total contribution rates and funded share that are generally optimal for high earning cohorts but not for low earning cohorts. This paper identifies that the effect of anomaly is most significant in a market characterized with high income-inequality level. This paper finds that imposing intra-generational risk sharing instrument in the form of minimum pension guarantee can re-balance pension design among different earning cohorts. This solution demonstrates balancing effect on the entire economy.

scholarly journals Retirement Planning Behaviour of Working Individuals and Legal Proposition for New Pension System in Malaysia

2016 ◽  
Vol 9 (4) ◽  
pp. 43 ◽  
Author(s):  
Kamal Halili Hassan ◽  
Rohani Abdul Rahim ◽  
Fariza Ahmad ◽  
Tengku Noor Azira Tengku Zainuddin ◽  
Rooshida Rahim Merican ◽  
...  
Keyword(s):  
Private Sector ◽  
Financial Literacy ◽  
Pension System ◽  
Retirement Planning ◽  
Private Pension ◽  
Pension Scheme ◽  
Age Group ◽  
Goal Clarity ◽  
Voluntary Basis ◽  
Private Pension System

<p class="MsoNormal" style="text-align: justify;">Problems have been identified pertaining to retirement scheme of the private sector employees in Malaysia where there is no legislated pension system in force. As a result of that, pension scheme and savings are more of a voluntary basis; although the principle is good but in practice many retirees suffer financially during their retirement. The objectives of this study are to examine factors contributing to individual’s retirement planning behavior and the private pension system in the private sector in Malaysia. Retirement planning behaviour in this study was measured with series of questions on behaviour about retirement planning. A total of 500 working individuals from private sectors in the age group of 40 years and above had participated in this study. The results identified several significant variables in the prediction of retirement planning among working individuals in Malaysia, including individual who had higher levels of education, higher levels of income, financial literacy, retirement goal clarity and attitude towards retirement. There is a correlation between retirement planning behavior and saving for old aged. As a response to the result collected from the survey, a legal proposition is put forward to address issues of pension during retirement among private sector’s employees.</p>

scholarly journals DEVELOPMENT OF NON-STATE PENSION FUNDS OF UKRAINE: PROBLEMS AND PERSPECTIVES

2021 ◽  
Author(s):  
Natalya Tataryn ◽  
Kateryna Zakorko ◽  
Sofia Kozar
Keyword(s):  
Pension Fund ◽  
Pension System ◽  
Public Awareness ◽  
Pension Funds ◽  
The State ◽  
Private Pension ◽  
State Pension ◽  
Private Pension System ◽  
State Pension Funds ◽  
Legal Entities

The article considers topical issues of determining the current state of development of the private pension system in Ukraine, and defines the concept of "private pension fund". In economic essence, the system of non-state pension fund is defined as an integral part of the system of accumulative pension provision, based on voluntary participation of individuals and legal entities in the formation of pension savings in order to receive additional pension contributions. Problems that hinder the development of private pension funds, namely the shadowing of wages and labor relations, lack of public awareness, lack of legislation are identified. The functioning of private pension funds in the country depends not only on reforming the existing pension system, but also on the growth of incomes, their de-shadowing and development of the financial market in general. The current pension system is not able to provide the population with the necessary pension assets. This problem can be solved by intensifying the activities of private pension funds. Emphasis is placed on the need and importance of a voluntary private pension system and its role in ensuring the development of the state economy. As world experience shows, in a market economy, the development of private pension funds is one of the important components to ensure effective functioning of the state. Private pension funds are powerful investment investors because they can mobilize additional investment resources. The main purpose of investing pension assets is to preserve the savings of the population. The main indicators of activity of non-state pension funds are analyzed, namely: pension contributions, pension payments, the number of concluded pension contracts, the amount of investment income, etc. Further trends in the development of private pension provision in Ukraine are noted, substantiated the necessary measures to intensify activities in modern economic conditions, proposed recommendations for solving existing problems of institutions. However, in implementing the proposed measures should be remembered participation of both individuals and legal entities.

scholarly journals COMPREHENSIVE ANALYSIS OF REGULATORY IMPACTS ON PERFORMANCE OF SLOVAK PENSION FUNDS

2021 ◽  
Vol 22 (3) ◽  
pp. 735-756
Author(s):  
Mário Papík ◽  
Lenka Papíková
Keyword(s):  
Pension System ◽  
Factor Model ◽  
Five Factor Model ◽  
Pension Funds ◽  
Private Pension ◽  
Government Interventions ◽  
Regulatory Interventions ◽  
Market Factors ◽  
Fama And French ◽  
Sustainability Challenges

Standard pay-as-you-go pension system is facing long-term and short-term sustainability challenges in several countries. Possible replacement of standard pension system might be in a form of private pension savings. Private pension savings are meaningful only if they provide sufficiently high returns. The aim of this manuscript is to analyse performance of Slovak pension funds and factors impacting this performance, especially government interventions. This manuscript is focused on enhanced Carhart four-factor model, Bollen and Busse four-factor model, and Fama and French five-factor model based on 23 pension funds from Slovakia from period starting September 2012 and ending September 2019. These models have been extended by other variables describing bond market factors and impact of regulatory interventions on performance of pension funds. Results of analysis have proved that legislative interventions have impact on performance of analysed pension funds. Each legislative intervention has caused average daily yield to decrease by about 0.01% to 0.03%. Findings described in this manuscript can contribute to better knowledge of pension funds for both contributors who need to decide whether to participate in the second pillar or not, as well as for regulators who develop legislation measurements in this area.

scholarly journals Modeling the Diffusion of Private Pension Provision

2018 ◽  
Vol 65 (4) ◽  
pp. 385-405
Author(s):  
Larysa Yakymova
Keyword(s):  
Diffusion Of Innovations ◽  
Historical Data ◽  
Pension Funds ◽  
Diffusion Models ◽  
Private Pension ◽  
Bass Model ◽  
Pension Systems ◽  
Pension Schemes ◽  
Diffusion Parameters ◽  
Innovation Diffusion Models

Abstract The purpose of this paper is threefold: to adapt the innovation diffusion models to describe and predict the diffusion of private pension provision; to evaluate the suitability of diffusion models based on the historical data from the Romanian and Ukrainian voluntary pension systems; and to compare the diffusion parameters of private pension provision in these countries. The study proven that diffusion models, such as the Rogers model and the Bass model, can reproduce the diffusion of innovations in the field of pensions. The Rogers diffusion parameters for Romania and Ukraine are almost identical; this gives grounds for a conclusion about the similar behavioral patterns in post-socialist countries. However, some limitations on models use are noted. During the crisis and when using the nudge mechanism, models are not always well-fitting, but when new pension schemes are introduced or new pension funds are opened, models can be used in “guessing by analogy”.

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