Going backwards? Analysis of the reversal of systemic pension reforms in Central and Eastern Europe Edward Whitehouse Head of Pension Policy Analysis Social Policy division OECD

Reformed systems: parameters 2 Type of public scheme DC contribution rate Reduction in earnings-related benefit EstoniaBasic + points4+2%20% HungaryDB6  8%26% PolandNDC7.3%37% Slovak RepublicPoints9%50% LatviaNDC2  10%44% LithuaniaBasic + DB3.5  5.5%52%

Switching behaviour

Reformed systems: replacement rates 4 EU-27 average OECD-34 average EstoniaHungary Slovak RepublicPoland

Reformed systems: replacement rates 5 EU-27 average OECD-34 average BulgariaLatvia Lithuania Romania

Distributional impact of reform: Poland 6

Switching and reform reversals: replacement rates 7

Poland: impact of changes on replacement rate BeforeAfterBeforeAfter Gross replacement rate, per cent MenWomen Total 53.7% Total 45.2% Total 39.7% Total 33.6%

Switching and reform reversals: replacement rates 9  Results based on OECD standard assumptions  2% earnings growth  3.5% net investment return  both in real terms  What matters for replacement rate from defined-contribution schemes is difference between earnings growth and investment return  Calculate neutral rate of return that equalises replacement rates  Wage growth – 5% for Estonia  Wage growth – 1.6% for Hungary  Wage growth – 2.0% M, – 2.3% F for Poland  Wage growth + 0.6% for Slovak Republic

Slovak Republic Long-term financial projections 10 EstoniaHungary Poland

Romania Long-term financial projections 11 BulgariaLatvia Lithuania

Conclusions: the OECD vision for retirement-income provision 12  Pension policy is about achieving a balance between adequacy and sustainability  A balanced pension system is a good thing  A mix of public and private provision  A mix of pay-as-you-go and pre-funding  A redistributive pension system is a good thing  With fiscal constraints, best to target public benefits on those most in need