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Pensions Core Course 2013: Pension Indicators - Reliable Statistics to Improve Pension Policy-making
The document discusses pension indicators and the need for reliable statistics to improve pension policymaking. It outlines key areas for pension indicators, including the demographic, economic, and social environment; the design of pension systems; and performance in meeting objectives like coverage, adequacy, and sustainability. Specific indicators proposed include demographic trends, labor force participation, pension parameters, and models of future pension entitlements. Reliable indicator data can help evaluate systems and identify the impact of reforms.
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Pensions Core Course 2013: Pension Indicators - Reliable Statistics to Improve Pension Policy-making
- 1. Pension Indicators Reliable statistics toimprove pension policy-making World Bank core course on pension reform Washington, D.C., April 2013
- 2. The need forreliable and up-to-date data Valuable lessons to be learned from other countries More countries address pressures of population ageing and maturing of pension systems Rapid change and widespread pension reform Need for timely information about increasingly diverse retirement-income provision Move away from narrow focus on financial sustainability Greater emphasis on a ‘results–based’ policy-making Impact of policy changes needs to be identified, measured and assessed 2
- 3. Data sources 3 Primarysources: national administrative: published or databases household surveys labour-force surveys Secondary sources: international organisations World Bank OECD (Organisation for Economic Co-operation and Development) Regional development banks ILO (International Labour Office/Organisation) United Nations ISSA (International Social Security Organisation)
- 4. Database: Constraints and challenges 4 Capacity and resources on the national level Co-ordination between national agencies Missing or wrong information of individual records Corruption, evasion and abuse of systems Comparability in secondary sources Applicability of key concepts
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- 7. Demographic, economic and socialcontext 7 Well known phenomenon of population ageing Lower fertility Longer life expectancy Patterns of labour-force participation by age Public finances: a constraint on pension-reform options Financial-sector development: a constraint on the direction of pension reform?
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- 9. Demographic change: Life expectancyat birth 9
- 10. Demographic change: Life expectancyat 60 10 0 5 10 15 20 25 EAP High income: OECD ECA LAC MENA S. Africa S. Asia World LifeExpectancyat60 1995-2000 2000-2005 2005-2010
- 11. Demographic change: Population ageing,history 11
- 12. Demographic change: Population ageing,projections 12 - 10 20 30 2010 2015 2020 2025 2030 2035 2040 2045 2050 Sub-Saharan Africa South Asia Middle East & North Africa Latin America & Caribbean High income: OECD Europe & Central Asia East Asia & Pacific
- 13. Economic context: labour-market participationof over 65s 13 0.00 10.00 20.00 30.00 40.00 50.00 60.00 East Asia & Pacific Europe & Central Asia High income: OECD Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa 1960 1980 2000 2010 Source: ILO
- 14. Other environment indicators 14 Fiscal situation: a constraint on reform choices? budget deficit government debt Financial-market development to de developed using World Bank indicators Institutions to be developed using World Bank governance indicators Kaufmann, D., A. Kraay, M. Mastruzzi (2009), ‘Governance Matters VIII: Aggregate and Individual Governance Indicators, 1996-2008’, Policy Research Working Paper no. 4978, World Bank, Washington, D.C. Beck, T. and A. Demirgüç-Kunt (2009), ‘Financial Institutions and Markets across Countries and over Time: Data and Analysis’, World Bank, Washington, D.C.
- 15. Design Indicators Structure of thepension system, key parameters and rules
- 16. World-Bank multi-pillar framework: simplifiedversion 16 Retirement-income system: national schemes Zero pillar: mandatory, public, adequacy Basic Resource-tested First pillar: mandatory, public, mainly income replacement DB Points NDC Public DC Minimum pensions Second pillar: mandatory private, income replacement Private DC Private DB Third pillar: voluntary private
- 17. Overall structure: First andsecond pillars 17 Zero pillar only: 5 countries (e.g., Botswana, Ireland, Namibia, New Zealand, South Africa) NDC: 10 countries (Azerbaijan, Egypt, Italy, Kyrgyz R., Latvia, Mongolia, Norway, Poland, Russia, Sweden) Private DC: 32 countries (Latin America, Eastern Europe/Central Asia, Australia, Denmark, Egypt, Ghana, Nigeria, Norway, Sweden) Public DC/provident funds: 25 countries (South Asia, Pacific, East Africa) DB schemes: 123 countries Points schemes: 10 countries (e.g., France, Germany, Senegal, Slovak R.)
- 18. Parameters: earnings measure 18 Lifetime averageearnings Best/final earnings East Asia/Pacific 3 3 Eastern Europe/ Central Asia 5 1 Latin America/Caribbean - 17 Middle East/North Africa - 10 South Asia - 2 Sub-Saharan Africa - 18 High-income OECD 16 3 World 24 54
- 19. Parameters: earnings measure 19 0 5 10 15 20 25 30 35 40 45 50 Pre-reformPost-reform Iceland Germany United States Canada Hungary Japan, Korea, Luxembourg, Switzerland Norway, United Kingdom Numberof years of earnings in pension calculation 0 5 10 15 20 25 30 35 40 45 50 Pre-reform Post-reform Number of years of earnings in pension calculation Austria, Finland , Poland , Portugal Czech Republic France Netherlands , Slovak Republic Greece, Italy, Turkey Sweden, Spain
- 20. Indexation 20 Prices Wages MixedAd hoc/ discretionary East Asia Pacific 2 2 1 Eastern Europe Central Asia 10 1 10 3 Latin America Caribbean 6 2 1 15 Middle East North Africa 2 1 9 Sub-Saharan Africa 8 2 7 High-income OECD 11 2 4 2 World 39 10 15 37
- 21. Contribution rate: Defined-contribution schemes 21 024681012 Numberofcountries 05 10 15 20 Contribution to mandatorty DC/provident fund (% of earnings)
- 22. Ceilings: OECD countries 22 0 5 10 15 Numberofcountries 100150 200 250 300 Ceiling on pensionable earnings (%of average earnings) Mainly no ceiling
- 23. Performance Indicators Assessing pension systems againstkey objectives and principles
- 24. Six principles andobjectives 24 Coverage of the pension system, by both mandatory and voluntary schemes Adequacy of retirement benefits Financial sustainability and affordability of pensions to taxpayers and contributors Economic efficiency: minimising distortions on economic behaviour, such as labour supply and saving Administrative efficiency: keeping costs low (collecting contributions, paying benefits, managing investments) Security of benefits in the face of different risks and uncertainties
- 25. Coverage How much ofthe labour force is covered by the pension system?
- 26. Coverage 26 Low coverageof formal pension systems may lead to widespread old-age poverty Retirement-income systems can affect people at all stages of their adult lives (as contributors or beneficiaries) Focus here in people of working age Measuring coverage: affiliates or members? but risk of double-counting people in multiple schemes or with multiple accounts/records also, dormant accounts/records of people no longer actively contributing people registered for social security but not covered by pension component
- 27. Defining coverage: The activemember concept 27 Someone who contributed to or accrued rights in a formal pension scheme Concept clearest when pensions are contributory, but active members of non-contributory schemes are also ‘covered’ Also, people who receive credits for periods of unemployment, caring for children, full-time education, military service etc. can be covered Note: active member concept only applies to mandatory income-replacement pensions (first and second pillars) and rarely to zero pillar schemes (universal basic, means-tested) Comparators: working-age population labour force
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- 29. Coverage 29 Note: numbers inparentheses are observations in each region 90% 65% 32% 34% 44% 13% 12% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% High-Income OECD (22) ECA (19) LAC (18) MENA (20) East Asia (5) South Asia (8) Sub-Saharan Africa (11) Simpleaveragecoveragerate(activemembers/laborforce)
- 30. Coverage and nationalincome 30 1000 2500 5000 10000 25000 50000 0 25 50 75 100 Pension systemcoverage (% of labor force) National income perhead (US$,PPP exchange rates)
- 31. Adequacy Pension entitlements, replacement ratesand pension wealth
- 32. Three approaches to assessingadequacy 32 Empirical information on pension entitlements of recent retirees Evidence from household survey data on income and poverty of older people Models of future pension entitlements of today’s workers
- 33. Modelling pension entitlements 33 Uses ‘Apex’ model (Analysis of Pension Entitlements across Countries) Results published in OECD Pensions at a Glance and World Bank Pensions Panorama Baseline assumptions: worker entering the labour market today full career from age 20 to national, normal pensionable age standard assumptions of inflation, average-earnings growth, investment returns (for DC), discount rate country-specific information on mortality rates Important to note this is an indicator not a forecast
- 34. Apex results fromPensions Panorama and PaG Asia/Pacific 34 Singapore Indonesia Malaysia Hong Kong Thailand Philippines China Vietnam Taiwan India Sri Lanka Pakistan Croatia Lithuania Estonia Czech Republic SlovakRepublic Latvia Bulgaria Poland Hungary Turkey Eastern Europe/CentralAsia South Asia EastAsia/Pacific 0 25 50 75 100 Mexico El Salvador Peru Chile Colombia DominicanRepublic Argentina Costa Rica Uruguay Djibouti Tunisia Jordan Morocco Bahrain Algeria Libya Egypt Yemen Iran x x Middle East/North Africa Latin America/Caribbean 0 25 50 75 100 Mexico El Salvador Peru Chile Colombia DominicanRepublic Argentina Costa Rica Uruguay Djibouti Tunisia Jordan Morocco Bahrain Algeria Libya Egypt Yemen Iran x x Middle East/North Africa Latin America/Caribbean
- 35. Old-age poverty: OECD countries 35 AUT CAN DNK FIN FRADEU GRC IRL ITA JPN LUX MEX NLD NZL NOR ESP SWE TUR UKD USA CZE AUS HUN CHE KOR ISL SVK PRT POL BEL 0 5 10 15 20 25 30 35 40 45 50 0 5 10 15 20 Old-age poverty rate (%) Populationpoverty rate(%) Old less likely to be poor Old more likely to be poor
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- 38. Financial sustainability Assessing the financesof pension systems over the long term
- 39. Economic efficiency Minimising the pensionsystem’s distortions of individual choices
- 40. Retirement incentives: simple approach 40 0 .25 .5 .75 1 5560 65 70 Labour-market exit age Eventual Immediate Canada
- 41. Retirement incentives: measurement 41 Defined benefitDefined contribution Points Notional accounts Longer working period Extra year’s entitlement Extra year’s contributions Extra year’s entitlement Extra year’s entitlement Extra year towards qualifying conditions — Extra year towards qualifying conditions Extra year towards qualifying conditions Valorisation of earlier years’ earnings Investment returns on accumulated balance Uprating of pension- point value Notional interest on accumulated notional capital Higher earnings replace earlier, perhaps lower, earnings in benefit formula — Higher earnings replace earlier, perhaps lower, earnings in benefit formula — Shorter retirement duration Forgo a year’s benefits Forgo a year’s benefits Forgo a year’s benefits Forgo a year’s benefits “Actuarial” adjustment Lower annuity factor “Actuarial” adjustment Lower annuity factor Delay in claiming Probability of dying Probability of dying Probability of dying Probability of dying Discounting Discounting Discounting Discounting
- 42. Retirement incentives matter: Effecton behaviour 42
- 43. Administrative efficiency Assessing the costof running public pension systems
- 44. Security Risk and uncertaintyin retirement-income systems