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Many countries seek to improve their pension systems by introducing corporate and individual savings plans to address the challenges of demography, social security, and economy. However, the establishing of a long-term, reliable savings system encounters multiple impediments. The retrospective analysis of Russian pension reforms offers some recommendations on solving the typical problems faced by reformers. Thus, in 2002 the Russian pension system was implemented by a mandatory savings pillar, which 20 years later the Ministry of Finance substituted by voluntary savings­. As this period appeared shorter than the average life span, this measure proved ­ineffective in increasing pension payouts for future retirees. The frequent regulatory changes and the shrinking workforce coverage as the state prioritized the welfare of the current pension recipients also infringed upon the interests of future retirees. Pension savings investments were further affected by the economic policy aimed at the minimal return requirements which resulted in a more conservative asset allocation strategy and inefficient active management in non-state pension funds. The study demonstrates that policy actions to overcome these impediments and to raise the replacement rates for future retirees should include (a) steady regulations within a pension savings system of no shorter than 40 years; (b) the savings pillar covering no less than 80% of the workforce; and (c) the asset allocation strategy involving a bigger share of equity, longer time horizon and clear benchmarks. These recommendations can be applied to emerging market economies concerned with improving and reforming their pension systems.

The past decade has brought an increasing recognition to the importance of pension systems to the economic stability of nations and the security of their aging populations. During this time, the World Bank has taken a leading role in addressing this challenge through its support for pension reforms around the world. Old-Age Income Support in the 21st Century attempts to explain current policy thinking and update the World Bank’s perspective on pension reform. The Bank has been involved in pension reforms in nearly 60 countries, and the demand for its support continues to grow. This book incorporates lessons learned from recent Bank experiences and research that have significantly increased knowledge and insight regarding how best to proceed in the future. The book has a comprehensive introduction and two main parts. Part I presents the conceptual underpinnings for the Bank’s thinking on pension systems and reforms, including structure of Bank lending in this area. Part II highlights key design and implementation issues where it signals areas of confidence and areas for further research and experience, and includes a section on regional reform experiences, including Latin American and Europe and Central Asia. This book will be of interest to Bank clients, the international community, and anyone interested in pension systems and reform.

Putting the pension system on a sustainable footing arguably remains the biggest challenge in Russia's economic policies. The debate about the policy options was hitherto constrained by the absence of general equilibrium analysis. This paper fills this gap by simulating their macroeconomic effects in a DSGE model calibrated to Russia's economy-the first of its kind to the best of our knowledge. The results suggest that a minimum benefit level in the public system should optimally be financed through lower government consumption, while higher taxation of labor and capital should be avoided. Reducing public investment spending is superior to increasing consumption taxes unless investment generates high rates of return.

This paper exploits an administrative regulation in Singapore that allows individuals to withdraw between 10% and 30% of their pension savings at age 55. We find a large and highly significant increase in individuals’ bank account balances within the first month of turning 55, which declines by about a third by the end of 12 months. Consumers use the increase in disposable income to pay down credit card debt. Liquidity constrained individuals are significantly more likely to increase their spending upon turning 55 than unconstrained individuals—nonetheless, the spending response of constrained individuals is concentrated on nondurable and nonvisible goods rather than visible goods. We also provide evidence that withdrawal behavior is responsive to the prices of durable goods such as cars. Consumers appear willing to forego much higher interest rates in their retirement accounts by leaving a sizeable portion of their withdrawn savings in a low-interest accruing bank account for at least a year after withdrawal. We show that, for some consumers, part of this behavior may be due to the desire to invest in the property market when housing returns are high. This paper was accepted by Gustavo Manso, finance.

Empirical analysis of two decades of pioneering pension and social security reform in Latin America and the Caribbean shows that much has been achieved, but that critical challenges remain. In tackling this unfinished agenda, a great deal can be learned from the reform experience of countries in the region. Keeping the Promise, produced by the chief economist's office in the Latin America and Caribbean Region at the World Bank, evaluates policy reforms in 12 countries, points to successes and shortcomings, and proposes priorities and options for future reform. \"Keeping the Promise provides a timely assessment of two decades of pension reform experience-with a wealth of new data, and empirical evaluation of reformed social security systems. Many economists and policymakers will not be persuaded by some of the main conclusions and recommendations-such as the supposed failure to increase coverage, and the call for strengthening a pay-as-you-go defined-benefit scheme for poverty prevention-but they will welcome the book's critical appraisal. This is required reading for pension specialists and policymakers in Latin America and beyond.\" -Klaus Schmidt-Hebbel, Chief of Economic Research, Central Bank of Chile \"A heavyweight analysis of the Latin American pension revolution which raises important questions about the optimal scale of compulsory saving when redesigning pension systems.\" -Paul Wallace, The Economist.

China is at a critical juncture in its economic transition. A comprehensive reform of its pension and social security systems is an essential element of a strategy aimed toward achieving a harmonious society and sustainable development. Among policy makers, a widely held view is that the approach to pension provision and reform efforts piloted over the last 10-15 years is insufficient to enable China's economy and population to realize its development objectives in the years ahead. This volume suggests a national pension system that no longer distinguishes along urban and rural locational or hukou lines yet takes account of the diverse nature of employment relations and capacity of individuals to make contributions. This volume is organized as follows: the main text outlines this vision, focusing on summarizing the key features of a proposed long-term pension system. It first examines key trends motivating the need for reform then outlines the proposed three-pillar design and the rationale behind the design choices. It then moves on to examine financing options. The text continues by discussing institutional reform issues, and the final section concludes. The six appendixes provide additional analytical detail supporting the findings in the main text. The pension system design can play an important role in supporting or constraining such economic and demographic transitions: 1) fragmentation and lack of portability of rights hinder labor market efficiency and contribute to coverage gaps; 2) multiple schemes for salaried workers, civil servants, and, in some areas, migrants similarly impact labor markets; 3) legacy costs that are largely financed through current pension contributions weaken incentives for compliance and accurate wage reporting; 4) very limited risk pooling and interurban resource transfers limit the insurance function of the urban pension system and create spatial disparities in old-age income protection; 5) low retirement ages affect incentives and benefits and undermine fiscal sustainability; and 6) relatively low returns on individual accounts result in replacement rates significantly less than anticipated while at the macro level, are likely to inhibit wider efforts to stimulate higher domestic consumption.

This paper investigates the spending and financial behavior of young adults in Estonia after they withdrew their pension savings from the previously mandatory second pillar. When the option was first implemented in 2021, one pension saver in five exercised it. We use account-level data to explore changes in spending and investing behavior, and in bank savings and debt holdings among those withdrawing. Regression analysis of differences in growth rates over various time horizons between matched samples reveals that early withdrawals have substantial short-term impacts on spending and the financial situation of those making the withdrawal, but these effects subside within half a year. The largest amounts were used for consumption and repayments of loans while the amounts invested were marginal.

In the current social conditions, pension systems have become the most important topic on the agenda for many countries. Therefore, governments have started paying attention and should reform their pension systems to guarantee an adequate contribution to pensions. Thus, this study analyzes the impact of investments and social factors on pension savings using Kazakhstan as an example. The paper is based on secondary data from the annual reports of the Unified Accumulative Pension Fund and annual statistical reports of the Bureau of National Statistics of the Republic of Kazakhstan from 2014 to 2022. SPSS software was used to analyze the collected data, specifically through correlation and regression analysis, to determine the impact and relationships between selected indicators (i.e., inflation rate, number of contributors, pension contribution, investment income and average wage). To check the reliability of the models, Fisher’s F-test and Student’s t-test were conducted. Therefore, a VIF diagnosis was conducted. The correlation analysis results showed that in the group of investment factors, pension savings are more dependent on pension contributions (,900**), and in social factors, on average wages (1,000**). Based on the results obtained, all factors have a positive impact on pension savings, except inflation. Inflation growth by 1% on average reduces the amount of pension savings by 23% over the nine-year period between 2014 to 2022, which is reflected in the results of Model 2. The study’s results can be applied to managing pension funds and reforms related to the pension system. AcknowledgmentsThis research was funded by the Science Committee of the Ministry of Science and Higher Education of the Republic of Kazakhstan (Grant “Exploring the impact of economic, social, and environmental factors on the relationship between urbanization and greenhouse gas emissions” No. AP19576071).

Post-socialist governments are looking for the best options to implement a fully funded pension system along with a pay-as-you-earn pension scheme. The paper aims to establish the impact of pension assets on economic growth using the example of post-socialist countries (Hungary, the Slovak Republic, Slovenia, Poland, and the Czech Republic). The use of methods of correlation and regression analysis allows determining the type of dependence (linear, exponential, gradual, and logarithmic) of countries’ economic growth indicators on pension assets and patterns for their investment (deposits, securities of public and private sectors). The obtained economic growth indicators of the studied post-socialist countries show a strong logarithmic dependence on the size of pension assets: Gross fixed capital formation depends on changes in the pension asset amount by 76.44% and GDP by 71.01%. The economic growth of the studied post-socialist countries is most significantly influenced by pension assets invested in deposits. Investing pension savings in public and private sector securities is less effective. The proved provisions determine the expediency of moving from the predominant pay-as-you-earn pension scheme to the predominant fully funded pension system for Ukraine. Such a transformation requires a stable and efficient construction of the country’s banking system, a developed policy for reforming the pension system while considering the criteria of the internal demographic, social, and financial situation.