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Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation: How to Bridge the Gap between Economic Theory and Policy Analysis

Autor: Bodor, András; Robalino, David; Rutkowski, Michal
Año: 2007
Resumen: Mandatory pension systems play a major role in individual savings and labor supply decisions. In particular, it is well known that defined benefit pension schemes, which are not actuarially fair, can create incentives for early retirement and therefore reduce labor supply and the stock of human capital in a given country. This is an important policy issue in middle-income countries, with still low participation rates in the labor force, where the "window" opened by the demographic transition is already closed or will close in the near future. In these countries, policies to stimulate private sector growth, competitiveness, and employment creation should be accompanied by policies that increase labor force participation, raising the ratio of active to inactive population and therefore the potential for higher income per capita growth. Unfortunately, the analytical tools developed to assess pension reform options tend to focus on the financial sustainability of the schemes and the adequacy of benefits. Little attention is given in practice to the social costs imposed by distortions on the supply of labor. In part, this is given by the lack of analytical tools that, in the context of limited information regarding individual preferences and behavior, can be used to assess the magnitude of these distortions. This paper develops methodologies that can bridge the gap between economic theory and the practices of pension policy personnel under conditions of deep uncertainty regarding the variables driving individual behavioral responses to policy changes. First, the paper develops an indicator to predict the age-specific retirement probabilities induced by a particular pension system, given heterogeneous individual preferences over risk, consumption, and leisure. The paper then describes how this indicator can be used to project the size of the labor force by gender, age and skill level and therefore the dynamics of human capital accumulation. The integration of these two analytical tools allow us to show the impact of a particular pension reform proposals on the dynamics of labor supply, human capital and, given the dynamics of capital and total factor productivity, economic growth. Furthermore, the paper develops a set of life-cycle income measures for typical individual paths that allow us to measure the contribution of segmented pension schemes to the segmentation of the labor market. The methods are applied to the case of Morocco.

Fuente: Banco Mundial
Clasificación: Mercado Laboral
Tipo de Publicación: Documentos de Trabajo
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The Use of Derivatives to Hedge Embedded Options : The Case of Pension Institutions in Denmark

Autor: Ladekarl, Jeppe; Ladekarl, Regitze; Andersen, Erik Brink; Vittas, Dimitri.
Año: 2007
Resumen: The main purpose of this paper is to examine the growing use of derivatives by Danish pension institutions as a risk management tool to hedge embedded options on their balance sheets. Throughout the 1980s and 1990s it was a widespread practice for Danish pension institutions to guarantee a minimum interest rate on new pension policies. With the new millennium global interest rates declined steeply and equity markets came crashing down. Suddenly the guarantees on pension contracts were in the money. The policies already written could not be changed, leaving liabilities and assets mismatched, profits in the red, and capital reserves drained. Out of necessity, and in some cases virtue, Danish pension institutions turned in scale to derivatives, allowing for a more active approach to hedging, asset and liability management, and even profit generation. Through the use of derivatives, pension institutions have avoided the need to renegotiate their guaranteed contracts with policy holders. They have succeeded as an industry in transforming their pay-off curves and have emerged with better matched asset/liability positions and lower exposure to interest rate risk. But the expanded use of derivatives also raises some risk management and regulatory issues, such as operational and counterparty risks as well as effective internal control systems and regulatory oversight.

Fuente: Banco Mundial
Clasificación: Regulación y Supervisión
Tipo de Publicación: Documentos de Trabajo
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Aging, Asset Allocation, and Costs: Evidence for the Pension Fund Industry in Switzerland

Autor: Weber, Rene; Gerber, David S.
Año: 2007
Resumen: This paper focuses on the nexus between pension funds' balance sheet liabilities, reflecting their age profile and payments obligations, and the investment behavior and costs of these funds. The context of the analysis is the stringent regulatory framework and the highly fragmented and heterogeneous pension fund landscape in Switzerland. Detailed data from the Swiss Pension Statistic are analyzed using multivariate OLS-regressions. The evidence shows that a younger age structure and lower short-term benefits payouts are related to a higher share of equities and lower real estate holdings. Legal form, pension plan type, and size are important for administrative costs. The findings support the view that aging may lead to increased risk aversion and thus to a lower engagement of institutional investors in equities.

Fuente: Fondo Monetario Internacional (FMI)
Clasificación: Seguridad Social y Sistemas de Pensiones
Tipo de Publicación: Documentos de Trabajo
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Mexico: Financial Sector Assessment Program Update: Technical Note: The Pension Annuity Market

Autor: Fondo Monetario Internacional (FMI)
Año: 2007
Resumen: This paper analyzes the performance and development of the Mexican pension annuity market in Mexico that stemmed from the 1997 pension reform. The Mexican experience displays interesting characteristics that provide lessons for other countries that still need to design the decumulation phase of their newly established second pillars. At the same, time it raises some technical and policy concerns that need addressing as they could hamper, in the future, the healthy development of the market. This paper benefited from interviews with officials in the Insurance Supervisory Authority (CNSF), the Ministry of Finance (SHCP), the Pension Supervisory Authority (CONSAR) and the Social Security Institute (IMSS) as well as with management of specialized annuity companies. It could have not been prepared without the written material provided by the CNSF, listed in the reference section at the end of the paper. The reminder of the paper is structured as follows: Section II briefly summarizes the 1992 and 1997 pension reforms from which the pension annuity market derives; Section III analyzes the evolution of the industrial organization, annuity product design and competition, the evolution of assets and liabilities and investment, as well as the regulatory framework for the aforementioned items, and the performance of the market; Section IV analyzes the development prospects of the market in light of the more recent 2001 and 2002 reforms of the 1997 social security law. Conclusions and policy recommendations follow.

Fuente: Fondo Monetario Internacional (FMI)
Clasificación: Seguridad Social y Sistemas de Pensiones
Tipo de Publicación: Informes
Idioma:

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Reducing Error, Fraud and Corruption (EFC) in Social Protection Programs

Autor: Tesliuc, Emil Daniel; Milazzo, Annamaria
Año: 2007
Resumen: Social Protection (SP) and Social Safety Net (SSN) programs channel a large amount of public resources, it is important to make sure that these reach the intended beneficiaries. Error, fraud, or corruption (EFC) reduces the economic efficiency of these interventions by decreasing the amount of money that goes to the intended beneficiaries, and erodes the political support for the program. While no program is immune to EFC, evidence from developed countries demonstrates that such leakage can be brought to negligible levels. In five Organization for Economic Co-operation and Development (OECD) countries (UK, Canada, Ireland, New Zealand, and USA) this fraction is between 2-5 percent for the SP sector as a whole. For SSN programs, which use more complex eligibility criteria and hence are more prone to EFC, this fraction is 10 percent. To achieve these results, programs have implemented a number of measures reviewed in this note. In contrast, efforts to combat or even measure EFC are quite rare in developing countries, although some programs are plagued by it.

Fuente: Banco Mundial
Clasificación: Seguridad Social y Sistemas de Pensiones
Tipo de Publicación: Informes
Idioma:

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