On pension and labour-market reforms.
Marier and Skinner present the consequences of increasing (or solidifying) the presence of private pensions within pension systems. Higher rates of home ownership will result in lower private pension investments. Tompson claims that pension reform may involve both governance of markets and direct administration of public schemes, and that many pension reforms involve changing the balance be tween public and private sources of pension income. Galasso isolates the factors that may impede the adoption and implementation of reforms to pension systems and labour-market institutions. Changes in pension systems can have a tremendous impact on agents' labourmarket incentives.
2. Reducing Inequalities among Pensioners
Pitacco et al. consider the actuarial calculations concerning pensions and life annuities: the insurance company (or the pension plan) must adopt an appropriate forecast of future mortality in order to avoid underestimation of the related liabilities. Pitacco et al. provide an introduction to some important issues concerning longevity risk in the area of life annuities and pension benefits, and describe crosssubsidy mechanisms which may operate in life annuity portfolios and pension plans. The progressive shift from defined benefit to defined contribution pension plans has increased the interest in life annuities. (1) Bertocchi et al. hold that the governmental cost of retirement takes two forms: (i) the direct cost of social pensions in the budget, and (ii) the taxes forgone as a result of company and individual tax-deferred pension plans. Often pensions redistribute income to the relatively well off. Disclosure of pension entitlements and rules vary among countries. It is hard to avoid pension fund performance from affecting corporate earnings. Pension wealth at retirement is a unique measure applied by the OECD. On Bertocchi et al.'s reading, state and local government pensions play an important role in retirement assets. (2)
Marier and Skinner hold that regardless of the pension regime in place, men receive substantially more from private sources than women: there is no relationship between the degree to which women depend on private sources and their total pension earnings. Marier and Skinner insist that the share of private pensions does not seem to be influencing lower pension results among women. Women have greatly benefited from key redistributive features of earnings-related public schemes. Taxation, like a public pension system, can play a determinant role in reducing inequalities among pensioners. The share of private pensions is how the state complements private pensions via its public schemes and tax system. (3) Howard and Berkowitz claim that the US government provides a retirement pension to virtually every senior citizen. Health and pensions in the United States share three striking similarities: (i) a fuzzy line separates the public from the private in both domains; (ii) citizens' experiences vary by income; and (iii) public programs and private benefits in health insurance and in pensions may experience significant stress in the coming decades. Public provision outstrips private provision. The public sector has assumed more responsibility for old-age pensions than it has for health insurance in the United States. (4)
3. The Evolution of the Public-private Pension Mix
Mitchell maintains that pension systems are a central component of the compensation package for workers in every developed nation. Public pension schemes around the world have experienced change. The current economic environment has produced a 'perfect storm' for public pensions. (5) Gold and Latter observe that a public pension plan allows taxpayers to pay today for benefits that will support retirees tomorrow: pension assets may be expected to earn investment returns over time. Public pensions are subject to the ordinary rules of the financial markets. Most public plans compute pensions as a percentage of final average pay. Public employees today enjoy generally better pension benefits than their private sector counterparts. (6) Matos identifies the ideal-types on public and private pensions, and contrast these with existing EU27 systems. Matos sustains hybrid mixes result from reforms themselves, and analyzes how the specific history of pension developments in EU27 countries can explain the present-day hybrid systems. Private pensions are supposed to be DC (i.e. strictly determined by contributions made and yielded returns as well as life expectancy). Individual private pensions encompass some hybrid elements. (7)
Ishikawa says that the public pension is not expected to finance the entire consumption of retired households. Ishikawa compares levels of benefits and fund assets of public and private pensions in Japan (the public pension fund is legally required to reserve only one year's benefit at the end of the planning period of 100 years) with those of other countries, and focuses on the private pension benefit of retired households and amount of contributions paid to private pensions by working households. The majority of assets held by "social security funds" are considered as the public pension fund. Ishikawa puts it that the public pension systems of high-income OECD countries can be regarded as being practically unfunded. Public and private pension are substitutes, as the majority of social security benefits can be regarded as public pension benefits. Pension benefits do not fulfill the role of financing consumption if the standard of living of retired households is inadequate. Contributions to corporate pension plans by employers can be regarded as imputed payment by employees. Private pension benefits contribute a great deal to the level of consumption. (8) Ebbinghaus and Gronwald describe the way in which institutional arrangements in occupational pensions evolved over time and interact with the public system, examining the process of institutional change by analysing critical junctures in the evolution of the public-private pension mix. The developments in the public pension pillar might be linked to those in the private pillars. The introduction of mandatory public old-age insurance had an important impact on the subsequent public-private pension development. (9)
4. Pension Reform Experiences in OECD Countries
Tompson argues that the current crisis has put great pressure on the finances of pension systems, making reform even more of a priority. Pension reform experiences in OECD countries highlight the need for careful study and consultation, the risks associated with excessive haste, and the importance of public communications and clear electoral mandates. Tompson states that current pensioners are rarely affected by pension reforms and workers approaching retirement usually experience only minimal change. Sharp swings in pension policy can be costly to contributors making career/savings choices for the long term. The costs of pension reform will be borne chiefly by younger cohorts. (10)
Galasso reports that financial crises have sometimes threatened the short-term solvency of some PAYG pension systems. Economic and financial crises may create opportunities for pension reforms. In deep recessions, the fall in pension contributions may jeopardise current payment of pension benefits. Crisis may require a reduction in pension spending and yet make the associated reform measures. Pension reforms are politically costly unless introduced with very long lead times. Economic crisis affects pension reforms. Pension reform proposals have sometimes been withdrawn due to the massive opposition by unions and left parties. Galasso emphasizes that a unilateral approach to reform is not promising when it comes to pensions. Many pension reforms impose only limited costs on workers approaching retirement. Financial or budgetary crises (11) stimulate pension reforms. (12)
Marier and Skinner note that most OECD countries have a long way to go before reaching equality in their pension distribution schemes. Men's pension earnings are linked to private sources more than women's. Tompson affirm that pension reform in many countries has advanced by changing one segment of the pension system at a time. Pension reform is an area in which public communication of reform messages is potentially effective. Galasso thinks that some pension reforms require complementary changes to labour-market institutions. It may be particularly difficult to pursue pension and labour-market reforms simultaneously. Pension and labour-market reforms may lead to large electoral backlashes.
(1.) Pitacco, E. et al. (2009), Modelling Longevity Dynamics for Pensions and Annuity Business. New York: Oxford University Press.
(2.) Bertocchi, M. et al. (2010), Optimizing the Aging, Retirement, and Pensions Dilemma. Hoboken, NJ: John Wiley & Sons, 5-159.
(3.) Marier, P. and Skinner, S. (2008), "Orienting the Public-Private Mix of Pensions," in Beland, D. and Gran, B. (eds.), Public and Private Social Policy Health and Pension Policies in a New Era. New York: Palgrave Macmillan, 45-69.
(4.) Howard, C. and Berkowitz, E.D. (2008), "Extensive but Not Inclusive: Health Care and Pensions in the United States," , 70-91.
(5.) Mitchell, O.S. (2009), "The Future of Public Employee Retirement Systems," in Mitchell, O.S. and Anderson, G. (eds.), The Future of Public Employee Retirement Systems. New York: Oxford University Press, 1-18.
(6.) Gold, J. and Latter, G. (2009), "The Case for Marking Public Plan Liabilities to Market," , 29-57.
(7.) Matos, C. (2010), "Unreformed or Hybrid? Accounting for Pension Arrangements Diversity in the EU," Forum for Social Economics 39(1):43 51.
(8.) Ishikawa, T. (2010), "The Role of Public and Private Pension Benefits in Financing Elderly Household Consumption: Comparison of OECD Countries," No. 8, September 22, NLI Research Institute.
(9.) Ebbinghaus, B. and Gronwald, M. (2010), "International Policy Diffusion or Path Dependent Adaptation? The Changing Public-Private Pension Mix in Europe," in Ebbinghaus, B. (ed.), Varieties of Pension Governance: The Privatization of Pensions in Europe. Oxford: Oxford University Press. Forthcoming
(10.) Tompson, W. (2010), "Reform beyond the Crisis," in Making Reform Happen: Lessons from OECD Countries. Paris: OECD, 11-38.
(11.) Zaharia, C. et al. (2010), "How Bad Governance Practices Inflicted Systemic Risks on the Global Economy," Economics, Management, and Financial Markets 5(1): 176-182.
(12.) Galasso, V. (2010), "Advancing Pension and Labour-market Reforms," , 69-100.
MADALINA GIORGIANA MANGRA
University of Craiova
NATALITA MARIA SPERDEA
University of Craiova
University of Craiova
University of Craiova
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|Author:||Mangra, Madalina Giorgiana; Sperdea, Natalita Maria; Cojocaru, Constantin; Robu, Valentina|
|Publication:||Economics, Management, and Financial Markets|
|Date:||Sep 1, 2010|
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