Comments on Old-Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reforms by R. Holzmann and R. Hinz plus several colleagues Guillermo Larrain Rios Superintendent of Pension Funds Administrators, Chile President of AIOS Cartagena de Indias, May 20th, 2005
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Guillermo Larrain Rios Superintendent of Pension Funds Administrators, Chile President of AIOS
Comments on Old-Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reforms by R. Holzmann and R. Hinz plus several colleagues. Guillermo Larrain Rios Superintendent of Pension Funds Administrators, Chile President of AIOS - PowerPoint PPT Presentation
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Comments on
Old-Age Income Support in the 21st
Century: An International Perspective on Pension Systems and Reforms
by R. Holzmann and R. Hinzplus several colleagues
Guillermo Larrain RiosSuperintendent of Pension Funds Administrators, Chile
President of AIOS
Cartagena de Indias, May 20th, 2005
General View• Multipillar pension systems are new. Excluding Chile,
none has more than 12 year old (Peru).• It is one of the few socio-economic institutions created in
developing countries and being adopted by developed ones: Sweden, ¿US?
• Implication: no OECD country is an example in this, there are no international standards (ie, no public good of good governance: Basle Accords, IOSCO, etc…)
• We, developing countries, must take this challenge in our hands and proceed to reflect, to model and to make funded pension systems coherent with the principles of social security. We are not making the appropriate effort
We rely on the kind help from the… World Bank
Therefore, the
clarificatio
n of official
World Bank policies
concerning pension
reform is welcomed
This Policy Report• Not a research paper. The report describes well the
criteria used by the WB in pension reform issues. • It is not as easy to read as a paper, there are few data,
but it is relevant to understand how the Bank articulates its reflection and policy suggestions in this topic.
• The WB approach is much more complex and nuanced than what is often perceived from outside.
• There is no unilateral argument in favour of capitalization systems, that is:– the P2 may constitute per se the main component of the pension
system,– that P0 and/or P1 are residuals
• There is a sense that countries are different and deserve a unique combination within the multipillar approach. This is a serious approach.
This Policy Report
• It starts increasing the number of pillars originally included in “Averting the Old Age Crisis”, giving therefore reason to those who think that coverage issues are relevant and require a treatment outside Pillar 2.
• But then, it reflects on how to improve Pillar 2 from various perspectives, giving reason to those who think that the system can be improved significantly from its current situation.
• One particular aspect of this is that there is no policy criteria suggesting that P1 should be strengthen at the expense of P2.
Six disordered and contradictory questions for the WB and for you
1. WB has a general emphasis on poverty prevention. For the sake of pension systems, isn´t it too much?
2. Maybe the WB has devoted less resources to promote a better P1, but have we made all relevant progresses in improving P2?
3. As enjoying a pension is a question of spending the money, have we devoted enough resources to improve the disbursement phase? Where are the LICs?
Six disordered and contradictory questions for the WB and for you
4. In moving towards a funded system people supposedly should be responsible for their future. Are they capable of managing those risks? And the other actors, State + AFPs?
5. Have we dealt appropriately with transitional problems? Is the political economy worse due to unresolved transitional problems?
6. The claim for more competition is also derived from the fact that pension savings are mandatory. Have we looked for a relevant and sustainable solution to competition? One implication: can we ask Parliaments for subsidies to strengthen P3, if we agree that there are IO problems in P2?
1) The discussion of pillar weight:
Too much emphasis in poverty prevention? – Poverty incidence at old-age– Myopia– Inertia
Relationship between different pillars.
• Incidence of Poverty is lower at old age.• Proposal for a universal pension looses ground in a
Pensiones menores a PM sin GE Pensiones menores a PM con GE Pensiones mayores a PM
Reachable scenario
Minimum Pension growth 2% Yield 7%
Source: Berstein, Larrain and Pino
(2005)
The definition of P1 is poor
AFP: Managers are more worried about risk of falling below Minimum Return
AFP A B C D ECUPRUM 13.50 11.36 9.32 6.71 5.68HABITAT 12.87 10.39 8.97 7.19 5.80PLANVITAL 11.94 9.68 8.99 6.91 5.02PROVIDA 12.73 9.98 8.82 6.60 5.18SANTA MARIA 12.27 9.59 8.05 6.54 4.38SUMMA BANSANDER 12.61 10.16 9.02 7.16 5.84System Average 12.86 10.26 8.86 6.80 5.44Standard Deviation 0.5343 0.6440 0.4299 0.2805 0.5698
Return on Funds by Manager and Type of Fund. 2004
• Returns tend to be very similar across different Managers. Evidence of Herd Behavior. Is it due to minimum return guarantee?
• More investment flexibility cannot imply that affiliates absorb the marginal risk. Who and how deals with it?
6) Transitional issues– Recognition bonds– Past macroeconomic events– Fiscal adjustment
There are also Transition Issues
– Recognition Bonds: calculated over an inconvenient base because unemployment was too high between 1975 and 1979
– Previsional Damage– High Unemployment
in 80s y 00s
These unresolved issues bias political economy
against the reform
Déficit Bonos de Pensiones Pensiones Déficit Civil Déficit Militar Déficit TotalPeríodo Operacional Reconocimiento Asistenciales Mínimas Sistema de Sistema de Sistema de