Through the retirement, severance at advanced age and old age branch, workers who provide their services to the private initiative receive a retirement pension if they meet certain age requirements ...and time of contributions to the social security system. In July 1997, a structural modification to this branch came into force that radically changed the way retirement pensions are calculated and financed, and it was not until January 2021 that the first parametric reforms were implemented to make it more affordable for workers to receive a pension. This paper reviews these modifications and some that were made previously related to the investment regime of resources contributed by workers, employers and the Federal Government that, during working life in the formal sector, accumulate in individual accounts. Created to finance retirement pensions for workers.
Mediante el ramo de retiro, cesantía en edad avanzada y vejez, los trabajadores que prestan sus servicios ala iniciativa privada, reciben una pensión por jubilación si cumplen con algunos requisitos de edad y tiempo de aportaciones al sistema de seguridad social. En julio de 1997 entró en vigor una modificación estructural a dicho ramo que cambió radicalmente la forma de cálculo y financiamiento de las pensiones por jubilación y fue hasta enero de 2021 que se implementaron las primeras reformas paramétricas que hacen más asequible para los trabajadores recibir una pensión. En este trabajo se hace una revisión de dichas modificaciones y de algunas que se efectuaron anteriormente relacionadas con el régimen de inversión de los recursos aportados por trabajadores, patrones y Gobierno Federal que, durante la vida laboral en el sector formal, se acumulan en cuentas individuales creada para financiar las pensiones por jubilación de los trabajadores.
Pension systems based on an insurance model were originally designed for male breadwinners who worked under permanent contracts without career breaks. Since their inception, women’s participation in ...the workforce has increased significantly, but on average, their employment career paths are still shorter and less linear compared to those that men enjoy. Demographic changes have prompted many countries to reform their pension systems to ensure long-term financial sustainability. And to varying degrees, such reforms also have looked to address the issue of short careers. In Poland, reforms introduced in 1999 brought about significant changes to the rules governing pension entitlement. That led to the emergence of a new category of retirees—those who had contributed to the pension system for a short period and consequently received very low pensions. This article provides an overview of an exploratory qualitative pilot study conducted in 2018 with nine women who were in receipt of benefits from the Polish universal pension system, which amounted to less than the so-called ‘lowest retirement pension’ being granted at that time. The analysis makes recourse to the concept of employment career and its connection to retirement to identify various life-course determinants that contributed to their situation. These factors include childhood and adolescent adversities that affected educational attainment; domestic and caregiving responsibilities coupled with cultural expectations and insufficient institutional support; the labor market situation, and the inability to document certain employment periods. The research material indicates that a significant portion of the work performed by the interviewees throughout their lives did not translate into a pension benefit, as it either involved unpaid domestic and caregiving duties; or work performed without formal contracts.
The introduction of a universal point-based system modifies the link between labour income and pension benefits. In this paper, we showthat for private-sectorworkerswith full careerswhose earnings ...fall belowthe social security contribution ceiling, the new system effects a redistribution in favour of the lowest-wage trajectories ; immediate conversion of pension rights acquired under the previous system into points is also more advantageous for low-wage trajectories than under the multiple calculation rules of earlier schemes ; careers with low-contribution years can be expected to incur significant declines in benefits ; and for low-wage careers, subsequent increases in the minimum pension may in some cases lead to a higher perceived effective pension.
L’adoption d’un système universel de retraite par points modifie le lien entre revenus du travail et pension de retraite. Dans cet article, pour des salariés du secteur privé aux carrières complètes (sous plafond de sécurité sociale), nous montrons que : une redistribution s’observe en faveur des carrières moins dynamiques ; une conversion immédiate en points des droits acquis dans l’ancien système, contrairement à une imbrication des règles de calcul, s’avère être une méthode qui avantage plutôt les carrières les moins dynamiques ; pour des carrières comportant de mauvaises années cotisées, des baisses de pension significatives sont possibles ; pour les carrières à faibles salaires, une hausse de la pension minimum peut conduire à une pension finale plus élevée.
In this paper, we offer an explanation to pension systems cyclical reforms, based on Central East Europe (CEE) countries experience over the last three decades. We claim that in the transition to ...funded pension design, the government not only transfers longevity and fiscal risks to the individualbut also absorbs risks transferred from the public, where each market actor transfers undiversifiable risks to the other. This hidden risk path that has not been discussed yet in the literature, stemmed from the public expectation to risk premium or adequate old age benefits that evolves to political pressure. The outcomes of this risk path realized in financial transfers, such as social security, means-tested and minimum pension guarantee. Consequently, funded pension designs naturally converge to a new landscape paradigm of risk sharing, including intergenerational and intra-generational play. Financial crises such as the recent COVID-19 pandemic foster the convergence process.
Introduction. Today, Ukraine faces a sharp poverty problem, aggravated by low level of population incomes. This is because the transformation processes in the economy and social structure has led to ...an increase in the number of people needing social protection and support from the state. Today a significant part of Ukraine’s population is below the poverty line. The most important task of socially oriented economy is the work of the social protection of all sectors of society and development of a strategy for effective social policies. Purpose. To define methodological approaches to optimal social protection of vulnerable groups of the population. Results. The tendencies of financial development in social security providing have been revealed. The author examines the factors that affect to the state financing of the social security system; the methods of realization of effective social support of the population. Non-contributory social benefits and services schemes, that from the State Budget, following items: social assistance; privileges; housing subsidies; and social services. Ukrainians rank among the world’s poorest people. But Ukraine recorded one of the sharpest declines in poverty of any transition economy in recent years. The poverty rate, measured against an absolute poverty line, fell from a high of 51.4 percent in 2013 to 38.2 percent in 2017. Since 2014, the government’s social reforms have focused on the implementation of the tasks of creating a fair pension insurance system; ensuring effective state social support of the population, etc. The minimum wage has doubled, and the subsistence minimum is 10.1%, the minimum pension is 16.4%. The largest share of Consolidated Budgets’ expenditures on social protection is expenditure on pensioners (more than 49%). Conclusions. In terms of social protection system, key challenges are to improve the quality and efficiency of social services. Assessing the effectiveness of social payments requires regular monitoring in order to determine their effect on the demographic, social and financial situation in the country.
This paper quantifies the effect of Poland's 1999 pension reform on the inequality of future pension benefits. The reform increases inequality, both in the upper and lower parts of the distribution. ...The estimates, based on the 2012 Polish Household Budget Survey, show that the Gini coefficient reaches 0.27 once the full effect of the reform has materialized. Had the pre-reform system continued unchanged, the Gini coefficient would not be >0.19. The increased inequality of pension benefits is the result of the system gradually moving from a more redistributive defined benefit pension system to a system in which benefits are strongly linked to earnings. We show to what extent minimum pension benefits mitigate the increase in inequality under different scenarios.
We examine the future benefits of the Israeli privatized pension system, which is considered as a model of transition to funded pension systems worldwide. This research is based on an extensive ...database obtained from one of the largest traditional private funds in the market. The results paint a concerning picture regarding the adequacy of benefits and quality of life in old age. Israel's radical privatized pension model signals a warning to other nations. We show that, even with high returns, most individuals cannot handle the magnitude of financial and labor risks accumulated during their career and retirement. We recommend more balanced government intervention as well as the use of risk-sharing mechanisms such as providing minimum pension guarantee and strengthening the unfunded social security pillar.
This study adopts a unique angle towardsexploring pension plans in a modern western marketinfluenced by aging. In particular, much weight has beenattributed to the effects of the Covid-19 pandemic ...crisisand frequent market turmoil. The full set of playersinvolved in the pension system has been considered withits different interests among both the current and futuregenerations In addition, we factor in the difference amongearning cohorts. By using the overlapping generationsmodel and Monte Carlo simulations, we note that in a widemacroeconomic range, pension equilibrium among themarket's players lies with the unfunded pension schemedespite the significant influence of aging. Contrary to theclassic economic arguments presented by the World Bankand IMF, ideas that were widespread during the 1980s and1990s, the choosing of pension system is much morecomplex. Public administrations must take into accountnot only the aging rhythm and market expected yields butalso other parameters, such as the current and future utilityperspective, the government's debt price, GDP per capitagrowth rate, risk aversion, and the possibility of marketturmoil.
In this paper, we offer an explanation for cyclical reforms to pension systems, based on the experience of countries in Central and Eastern Europe (CEE) over the last three decades. We conclude that ...in making the transition to funded pension design, governments not only transfer longevity and fiscal risks to the individual but also absorb risks transferred from the public, with each market actor transferring undiversifiable risks to the other. This pathway of hidden risks, which has not previously been discussed in the literature, stems from a public expectation that citizens will enjoy risk premiums and adequate old-age benefits, an expectation that evolves into political pressure. The outcomes of this risk path are realized in financial transfers, such as means-tested social security and minimum pension guarantees. Consequently, funded pension designs converge naturally into a new landscape paradigm of risk-sharing, with intergenerational and intragenerational components. Financial crises such as the one accompanying the recent COVID-19 pandemic foster the convergence process.
Purpose
This paper aims to analytically show that in an over-lapping-generation (OLG) model, low earning cohorts bear unwanted risk and absorb higher economic cost than high earning cohorts do.
...Design/methodology/approach
This paper aims to consider the individual's risk appetite, using a simple utility function, based on consumptions and discount rates in each period. This paper calibrates the model according to teh Israeli pension system as a representative of a small open developed organization for economic cooperation and development country. Israel is considered as unique case study in the pension landscape, as it implements almost pure defined contribution pension scheme with continuous trend of pension market capitalization (Giorno and Jacques, 2016). Hence, this study finds Israel suitable for examining the theoretical mix of pension scheme. That model enables exploring combined solutions for adequate old age benefits, involving the first and the second pension pillars, under fiscal constraints.
Findings
It comes out that for risk-averse individuals, the optimal degree of funding is negatively correlated to asset returns' volatility and positively correlated to earning decile level. The neglect of risk and individual's current earning level will thus overstate the contribution level and funded percentage from total contributions. Moreover, even in an economy with minimum government intervention, and highly developed private pension fund with high average of rate of return, the authors find it is optimal that the pension system contains a sizeable unfunded pillar. This paper innovates by revealing a socio-economic anomaly in design of mix pension systems in favor of high earning cohorts on the expense of economic loss of low earning cohorts.
Practical implications
The model presented in this paper could be implemented in countries with mix pension systems, as an alternative to public social transfers or means tested, alleviating poverty and inequality in old age. Additionally, this model could raise the public awareness of the financial sustainability of the unfunded pay-as-you-go pillar to diversify financial risk in pension systems, especially for low earning cohort in society.
Social implications
One area of research that is particularly relevant in this context concerns the issue of alleviating poverty and income inequality. It is often stressed that the prevention of old age poverty is among the central targets of well-designed pension system (Holzmann and Hinz, 2005). The conceptualization of minimum pension guarantee used in this composition allows to clearly capturing the notion of such a poverty and social targets as an integral part of the pension system rolls.
Originality/value
This paper innovates by revealing a socio-economic anomaly in design of mix pension systems in favor of high earning cohorts on the expense of economic loss of low earning cohorts. That comes to realize through the level of total contribution rates and funded share that are generally optimal for high earning cohorts but not for low earning cohorts. This paper identifies that the effect of anomaly is most significant in a market characterized with high income-inequality level. This paper finds that imposing intra-generational risk sharing instrument in the form of minimum pension guarantee can re-balance pension design among different earning cohorts. This solution demonstrates balancing effect on the entire economy.
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