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Pension Reform in Central and Eastern Europe

Pension Reform in Central and Eastern Europe. Elaine Fultz Senior Specialist in Social Security ILO Budapest. Regional trends:. More individualized benefits reduce redistribution count more years of work Notional defined contribution (NDC). 2. Retirement Ages – New EU States.

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Pension Reform in Central and Eastern Europe

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  1. Pension Reform in Central and Eastern Europe Elaine Fultz Senior Specialist in Social Security ILO Budapest

  2. Regional trends: More individualized benefits reduce redistribution count more years of work Notional defined contribution (NDC)

  3. 2. Retirement Ages – New EU States

  4. Retirement Ages – Stability Pact Countries of South Eastern Europe

  5. 3. Unified collection systems: • Latvia 1996 • Slovenia 1996 • Estonia 1999 • Hungary 1999 • Croatia (Tax Authority + REGOS) 2001 • Bulgaria 2002 • Albania 2003 • Romania 2004

  6. 4. Pension privatization in the new EU member states

  7. Status of Pension Privatization in SEE Countries

  8. 5. Laws Authorizing Voluntary PensionFunds in new EU member states

  9. Laws Authorizing Voluntary PensionFunds in SEE Countries

  10. 6. Issues and Problems: a. Transitional financing costs b. Negative investment returns c. Delay on private benefit package

  11. Transitional financing costs in Poland Chlon, Agnieszka, "The Polish Pension Reform of 1999," in Fultz, E., Ed., Pension Reform in Central and Eastern Europe, Vol. 1, ILO: Budapest, 2002.

  12. Replacement rates, Poland Chlon, Agnieszka, "The Polish Pension Reform of 1999," in Fultz, E., Ed., Pension Reform in Central and Eastern Europe, Vol. 1, ILO: Budapest, 2002.

  13. Performance: • “Internal rate of efficiency” calculated • Hungary – 1998-2000 – industry return was –4.1 percent (7.1 percent growth, 11.2 percent inflation) • Poland – Jan 2000 – June 2001 -ranged from –3 percent to –14 percent

  14. New ILO reports (Dec. 2004) • Hungary 3.75% average annual internal rate of efficiency over first 6 years of operations 6.6% inflation rate • Poland 20.3% increase in value of second pillar savings over December 1999 – June 2004 24% inflation rate

  15. Why the negative returns? • Poor stock market performance? • Industry charges and fees?

  16. Admin. charges and their impact Chlon, Agnieszka, "Funded pensions in the transition economies of Europe and Central Asia: Design and Experience", FIAP, 2004.

  17. Investment management performances in Hungary, 2000 Augustinovics et all, in Fultz (as cited above)

  18. Management Costs of Hungarian Mandatory Pension Funds Matits, A., "Practical Experience with the Second Pillar of the Hungarian Mandatory Pension System," delivered at an ILO pension conference, Budapest, Dec. 9‑10 2004.

  19. Structure of Assets of Mandatory Private Pension Funds in Hungary Matits, A., "Practical Experience with the Second Pillar of the Hungarian Mandatory Pension System," delivered at an ILO pension conference, Budapest, Dec. 9‑10 2004.

  20. Long Term Investment Performance of the Hungarian Mandatory Pension Funds by Size of Assets, 1999-2003 Matits, A., "Practical Experience with the Second Pillar of the Hungarian Mandatory Pension System," delivered at an ILO pension conference, Budapest, Dec. 9‑10 2004.

  21. 7. Pension contribution rates in CEE, 2002 (as a percent of insured wages)

  22. Pension contribution rates in SEE Countries, 2004 (as a percent of insured wages)

  23. 8. Pension contribution rates in CEE countries with mandatory private pension tiers, 2002

  24. Pension contribution rates in SEE countries with mandatory private pension tiers, 2004

  25. 9. Demographic Aging: • Changing the pension financing method cannot „Avert an Old Age Crisis” • Need to increase employment

  26. 10. Employment rates in 2002 Chlon, Agnieszka, "Funded pensions in the transition economies of Europe and Central Asia: Design and Experience", FIAP, 2004.

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