Pensions
Old Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reform
A Conversation with Robert Holzmann / Event
April 2006
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Learn more about the AARP Global Aging Program
AARP Global Aging Program Idea Exchange Series
Washington, D.C.
Robert Holzmann, Director of the Social Protection Department of the Human Development Network, World Bank, recently spoke at the AARP Global Aging Program’s Idea Exchange. Mr. Holzmann discussed the book he co-authored, Old Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reform, and the World Bank's gradually evolving approach to pension reform. He emphasized the importance of pension reform while focusing on the dynamics of reform.
According to Holzmann, the dynamics of today’s global pension reform encompass three main shifts:
- The move towards multi-pillar pension schemes.
- The move from mandatory to voluntary systems.
- The move from Defined Benefit (DB) towards Defined Contribution (DC) retirement plans.
Although many of the world’s regions are shifting responsibility for retirement from government and corporate sectors to individuals, Holzmann notes that reform in each nation is unique. For example, 12 countries in Latin America have legislated, and 10 countries have introduced, systemic pension reform featuring a multi-pillar, unfunded system. This has served as an inspiration but not blue-print for the rest of the world, especially for countries with transition economies like those found in Central and Eastern Europe (CEE). CEE nations inherited large pension systems with 100 percent coverage, but have moved or are moving to multi-pillar benchmark systems.
With regards to reform direction, it is evident to Mr. Holzmann that three things drive systematic change: reform as catalyst for improvement (such as short term fiscal pressure, globalization, and socio-economic changes), reform based on sound economic principals (such as market based, public pre-funding, and multi-pillar models), and enabling environments that ensure successful implementation of new policy (such as macroeconomic stability and government commitment to reform).
In addition to overall pension reform, many countries have made innovations that may further assist or improve the world’s pension systems. For example, Sweden, Argentina and Croatia have clearinghouses that should allow the contribution collection, record keeping, and benefit disbursement at low costs while keep asset management decentralized. Another innovation used by some countries allows for the folding of severance pay and accumulated unused unemployment benefits into a retirement income. Last but not least, Non-Financial (or Notional) Defined Contribution plans, that are individual accounts on an unfunded basis which have been pioneered in Sweden, Latvia, Poland and Italy are getting increasing traction in middle such as Chine and Egypt.
Finally, as Mr. Holzmann explained, challenges to the world’s pension systems, as it pertains to the rapid increase in the aging population, still exist. pension reform will remain on the reform agenda in developing, emerging, and developed economies for many years to come as societies continue to age and birthrates fall.
Bio: Robert Holzmann is the Director of the Social Protection &Labor Department of the Human Development Network of the World Bank. This unit is in charge of the conceptual and strategic Bank work in the area of social risk management, covering, labor market interventions (including child labor), social insurance (including pensions) and social safety nets (including social funds). He was professor of economics at the Universities of Vienna (Austria) amd Saarland (Germany), guest-professor at universities in Chile, Japan and the USA and senior economist at IMF and OECD. He has published 24 books and over 100 articles on social, fiscal and financial policy issues.