Switching : The Role of choice in the Transition to a Funded Pension System
The transition from a wholly public, pay-as-you go pension system to one where pensions are also provided by individual, privately managed pension accounts does not directly affect those receiving pensions at the time of the reform. Nevertheless, i...
| Main Author: | |
|---|---|
| Format: | Brief |
| Language: | English |
| Published: |
Washington, DC
2012
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2005/07/6265567/switching-role-choice-transition-funded-pension-system http://hdl.handle.net/10986/11212 |
| Summary: | The transition from a wholly public,
pay-as-you go pension system to one where pensions are also
provided by individual, privately managed pension accounts
does not directly affect those receiving pensions at the
time of the reform. Nevertheless, it could affect all
current and future workers. A critical policy choice is
whether these workers should be allowed, encouraged or
forced to divert their pension contributions to the new
private element. The note continues with an in depth
analysis of the spectrum of switching strategies; and
further, describes the objectives of a successful reform.
First, the new scheme should aim to provide a reasonable
level of retirement income. Secondly, the benefit level must
be consistent with long-run fiscal policy. The diversion of
payroll taxes from financing current pay-as-you-go pensions
into the funded scheme will increase deficits at first, so
short-term fiscal constraints are also important. Thirdly,
pension reform has microeconomic objectives: improve the
workings of capital and labor markets. Finally, the reform
must be politically palatable. Some of the note conclusions
are : older workers are best excluded from reforms, because
there is little time to build substantial funds in the new
private scheme; a mandatory cut-off age is arbitrary and
leads to political or legal challenges; and Governments can
and should manage the switching process, by altering
incentives and ensuring people make informed choices. |
|---|