This paper discusses the key sources of vulnerabilities for pension plans and insurance companies in light of the global financial crisis of 2008. It also discusses how these institutional investors ...transit shocks to the rest of the financial sector and economy. The crisis has re-ignited the policy debate on key issues such as: 1) the need for countercyclical funding and solvency rules; 2) the tradeoffs implied in marked based valuation rules; 3) the need to protect contributors towards retirement from excessive market volatility; 4) the need to strengthen group supervision for large complex financial institutions including insurance and pensions; and 5) the need to revisit the resolution and crisis management framework for insurance and pensions.
Population aging will affect the performance of pension funds and financial markets in the former transition economies and require determined policy actions to complete financial market development ...and to promote financial literacy through education.
"This book traces and analyzes the legislation and implementation of pension reforms in four Central, Eastern and Southeastern European countries: Croatia, Hungary, Poland and Slovenia. By comparing ...the political economy of their policymaking processes, it seeks to pinpoint regularities between institutional settings, actor constellations, decision-making strategies and reform.Guardiancich employs a historical institutionalist framework to analyze the policies, actors and institutions that characterized the period between the collapse of socialism and the global financial crisis of 2008-2009. He argues that viable pension reforms should not be seen simply as an event, but rather as a continuing process that must be fiscally, socially and politically sustainable. In particular, the primary goal of a pension scheme is to reduce poverty, provide adequate retirement income and insure against the risks of old age within given fiscal constraints, and this will happen only if the scheme enjoys continuing political support at all levels.This book will be of interest to students and scholars of political science, political economy, social policy and economics"--
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.
We compare the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving ...similar fiscal targets. We show the presence of a policy trade-off. Pension reforms that increase the retirement age have a large positive effect on output, but a small (and often negative) effect on the current account. In contrast, reforms that cut pension benefits improve the current account balance but reduce output. Mixed pension reforms, which extend the working life and cut pension benefits, can simultaneously boost output and the current account.
During the 1990s, a failure to collect social contributions in Central and Eastern European countries deprived pension schemes of resources needed to meet their obligations. Based on these countries' ...experience, this paper examines the trend to increase coordination of tax and contribution collections. It sets out the rationale for establishing a unified agency as the best long-term strategy, and discusses policy and administrative issues in implementing this approach. The appendix presents three case studies for Albania, Bulgaria, and Romania, which are establishing a unified revenue administration. Another case study is presented for Sweden, which successfully integrated tax and social contributions collections in the 1980s.
As of December 2008, state governments had approximately $1.94 trillion set aside in pension funds for their employees. How does the value of these assets compare to the present value of states' ...pension liabilities? Just as future Social Security and Medicare liabilities do not appear in the headline numbers of the U.S. federal debt, the financial liability from underfunded public pensions does not appear in the headline numbers of state debt. If pensions are underfunded, then the gap between pension assets and liabilities is off-balance-sheet government debt. We show that government accounting standards require states to use procedures that severely understate their liabilities. We then discuss the true economic funding of state public pension plans. Using market-based discount rates that reflect the risk profile of the pension liabilities, we calculate that the present value of the already-promised pension liabilities of the 50 U.S. states amount to $5.17 trillion, assuming that states cannot default on pension benefits that workers have already earned. Net of the $1.94 trillion in assets, these pensions are underfunded by $3.23 trillion. This “pension debt” dwarfs the states' publicly traded debt of $0.94 trillion. And we show that even before the market collapse of 2008, the system was economically severely underfunded, though public actuarial reports presented the plans' funding status in a more favorable light.
The paper discusses the limits to market-based risk transfer in the financial system and the implications for the management of systemic long-term financial risks. Financial instruments or markets to ...transfer and better manage these risks across institutions and sectors are, as yet, either nascent or nonexistent. As such, the paper investigates why these markets remain "incomplete." It also explores a range of options by which policymakers may encourage the development of these markets as part of governments' role as a risk manager.
In the wake of the financial crisis and Great Recession, the health of state and local pension plans has emerged as a front burner policy issue. Elected officials, academic experts, and the media ...alike have pointed to funding shortfalls with alarm, expressing concern that pension promises are unsustainable or will squeeze out other pressing government priorities. A few local governments have even filed for bankruptcy, with pensions cited as a major cause. Alicia H. Munnell draws on both her practical experience and her research to provide a broad perspective on the challenge of state and local pensions. She shows that the story is big and complicated and cannot be viewed through a narrow prism such as accounting methods or the role of unions. By examining the diversity of the public plan universe, Munnell debunks the notion that all plans are in trouble. In fact, she finds that while a few plans are basket cases, many are functioning reasonably well. Munnell's analysis concludes that the plans in serious trouble need a major overhaul. But even the relatively healthy plans face three challenges ahead: an excessive concentration of plan assets in equities; the risk that steep benefit cuts for new hires will harm workforce quality; and the constraints plans face in adjusting future benefits for current employees. Here, Munnell proposes solutions that preserve the main strengths of state and local pensions while promoting needed reforms.
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