1. PENSION REFORM AROUND THE WORLD
Chris Daykin
UK Government Actuary

2. THE PROGNOSIS FOR TRADITIONAL SOCIAL SECURITY
demographic ageing and scheme maturity
retirement ages too low
coverage incomplete
poor compliance
economic considerations
changing political fashion
insufficient advanced funding

3. DEMOGRAPHIC AGEING low fertility increasing expectation of life
baby boomer bulge in some countries
deteriorating dependency ratios
ageing working population
increasing numbers of very elderly

4. TOTAL PERIOD FERTILITY RATES, 1960-2010

5. TOTAL PERIOD FERTILITY RATES IN AFRICA, 1960-2010

6. AVERAGE ACHIEVED FAMILY SIZE FOR UK COHORTS BORN 1945-1975

7. PERCENTAGE OF PERSONS SURVIVING TO SUCCESSIVE AGES UK LIFE TABLES, 1911-2031

8. DISTRIBUTION OF DEATHS OVER AGE 15, ENGLAND & WALES

9. EXPECTATION OF LIFE FOR MALES, 1950-2010

10. EXPECTATION OF LIFE FOR AFRICAN MALES, 1950-2010

11. EXPECTATION OF LIFE FOR FEMALES, 1950-2010

12. EXPECTATION OF LIFE FOR AFRICAN FEMALES, 1950-2010

13. DEPENDENCY RATIOS, 1970-2030 (nos. 65 & over per 1000 aged 15-64)

14. DEPENDENCY RATIOS, 1970-2030 (nos. 65 & over per 1000 aged 15-64)

15. % INCREASE IN NUMBERS AGED 65 & OVER, 1990-2010

16. PENSION REFORM TYPOLOGY
contribution adjustment and reform
benefit adjustment and reform
structural reform
reform of retirement age and structures
new approaches to financing old schemes
development of funded pensions

17. STRUCTURAL REFORM move to notional defined contributions
introduce or increase flat-rate element
make greater use of means-testing
introduce element of pre-funding
increase role of private pensions

18. NOTIONAL DEFINED CONTRIBUTION
clear link between contributions and benefits
still on a PAYG basis rather than funded
different revaluation approaches
possible demographic adjustment factor
annuity conversion at pension age
permits flexibility of retirement age
passes on part of longevity risk

19. EXAMPLES OF NDC Sweden Italy Latvia Brazil China (2nd pillar)
France (régimes complémentaires)

20. NEW APPROACHES TO FINANCING
shift some of the cost to general revenue
introduce additional ear-marked taxes
pre-fund part of the future liability
make investment process independent
introduce funded component

21. DEVELOPMENT OF FUNDED SCHEMES
increased level of investment
possible economic benefits
introduces market disciplines…..
…..and in some cases competition
may improve efficiency
makes pensions less political

22. CHILE compulsory contributions to AFPs choice of AFP
minimum pension guaranteed by state
underpin on annual return
recognition bonds for previous rights
old scheme closed to new entrants
high levels of transaction costs

23. SINGAPORE Central Provident Fund (from 1953) defined contribution
deposit account style
high contributions (varying from time to time)
medical expenses, education, investment
lump sum benefit

24. MEXICO future contributions into AFOREs ongoing costs paid from budget
reinsurance of disability and survivorship
index-linked annuities
protected rights from old system
guaranteed minimum pension
pressures on annuity markets

25. AUSTRALIA Award Superannuation from 1986
Superannuation Guarantee Levy from 1992
Industry Funds and Master Trusts
mandatory employer contribution of 6%
9% employer/3% employee from 2002/03
administrative problems at start
90% of administration now with two providers

26. HONG KONG Mandatory Provident Fund from 2000
contributions of 10% of salary plus allowances
earnings floor and ceiling
private schemes and master trust schemes
alternative of occupational retirement schemes
63% of employed population in MPF( )

27. CHINA flat-rate basic pension (20% of average wage)
NDC second pillar (11% contribution)
partially funded (in some provinces)
pension is 1/120 of accumulated amount
fully funded voluntary third pillar
Liaoning experiment * basic pension at 30% of average wage * fully funded DC from employee contns.

28. ARGUMENTS IN FAVOUR OF FUNDING
increases level of saving
helps to develop capital markets
provides needed investment capital
helps to address ageing problems
may reduce long-term cost

29. COUNTER-ARGUMENTS may substitute for other saving
markets may not be able to cope
may push up prices with excess demand
ageing will still have an impact
cost is only reduced in certain circumstances

30. DEMOGRAPHY AND FUNDED SCHEMES
pension investment keeps market buoyant
disinvestment may depress market
international diversification may help
ageing will produce mature pension schemes
maturity requires more bond investment
DC plans will be directly affected

31. DEFINED CONTRIBUTION PLANS
transparent and easy to implement
expose members to investment risk
important to address issues of - solvency expense levels appropriate investment profile - guarantees, if any annuitisation

32. PROBLEMS WITH PRIVATE MANAGEMENT
higher costs of disaggregated system
insolvency risk
marketing costs
possibility of mis-selling
variable investment performance
risk of fraud or mismanagement

33. PROBLEMS WITH ANNUITIES
concentration of risk
mortality uncertainty
need for very long-dated bonds
preferably index-linked
permit programmed withdrawal?

34. CONCLUSIONS advantages of a mix of systems
private funds are not a panacea
problems of coverage and risk
good regulation is essential
need to keep transaction costs down
risks of mis-selling
need for functioning capital markets
... and annuity markets