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E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
A N D P E N S I O N L A W
Vol. 3, No. 5: March 14, 2002
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"The Long-run Effects of the Italian Pension Reforms"
International Tax and Public Finance, Vol. 8, No. 1, pp.
83-111, January 2001
NICOLA SARTOR
Universita degli Studi di Verona
"The Reform of Pension Systems: Winners and Losers Across
Generations in the United Kingdom and Germany"
Economica, Vol. 67, Issue 266, May 2000
DAVID MILES
Imperial College Management School
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
Centre for Economic Policy Research (CEPR)
ANDREAS IBEN
Imperial College of Science, Technology and
Medicine, UK
"Pension Prefunding, Aging, and Demographic Uncertainty"
International Tax and Public Finance, Vol. 8, No. 4, pp.
573-593, August 2001
JUKKA LASSILA
ETLA, Research Institute of the Finnish Economy
TARMO VALKONEN
ETLA, Research Institute of the Finnish Economy
"How Can China Solve its Old Age Security Problem? The
Interaction Between Pension, SOE and Financial Market Reform"
Forthcoming in Journal of Pension Economics and Finance,
Vol. 1, No. 1, 2002
ESTELLE JAMES
Consultant, Washington DC
World Bank
WORKING PAPERS
"Financing Retirement in the European Union"
A. LANS BOVENBERG
Tilburg University
Department of Economics
Centre for Economic Policy Research (CEPR)
CPB Netherlands Bureau for Economic Policy Analysis
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
"Strengthening Employment-Based Pensions in Japan"
OLIVIA S. MITCHELL
University of Pennsylvania, Wharton School
National Bureau of Economic Research (NBER)
ROBERT L. CLARK
North Carolina State University
National Bureau of Economic Research (NBER)
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N E W and F O R T H C O M I N G Articles
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"The Long-run Effects of the Italian Pension Reforms"
International Tax and Public Finance, Vol. 8, No. 1, pp.
83-111, January 2001
BY: NICOLA SARTOR
Universita degli Studi di Verona
Contact: NICOLA SARTOR
Email: Mailto:nicola.sartor@univr.it
Postal: Universita degli Studi di Verona
Dipartimento di Diritto dell'Economia
via dell'Artigliere, 19
I-37129 Verona, ITALY
Phone: +39 045 8028 508
Fax: +39 045 8028 519
ABSTRACT:
The paper analyses the reforms of the Italian mandatory pension
scheme for employees legislated in the 1990s. To assess the
effects of the reforms, a microsimulation model calibrated on
cross-section data is developed. The model is aimed at
estimating the average income of a member of a cohort, as well
as the average per capita income of all individuals alive in a
given year. The long-run effects of the reform are analysed,
comparing the characteristics of alternative financing schemes.
A substantial improvement of the equity as well as the long-run
sustainability of the Italian public pension schemes emerges.
However, the dreary demographic scenario calls for further
tightening of eligibility rules sometime in the next decades if
long-run sustainability of public debt is to be achieved. On the
basis of sensitivity analysis, some changes aimed at hedging the
system against unexpected shocks are suggested.
Keywords: Public pensions, sustainability of fiscal policy,
generational accounting
______________________________
"The Reform of Pension Systems: Winners and Losers Across
Generations in the United Kingdom and Germany"
Economica, Vol. 67, Issue 266, May 2000
BY: DAVID MILES
Imperial College Management School
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
Centre for Economic Policy Research (CEPR)
ANDREAS IBEN
Imperial College of Science, Technology and
Medicine, UK
Contact: DAVID MILES
Email: Mailto:dmiles@ic.ac.uk
Postal: Imperial College Management School
53 Princes Gate, Exhibition Road
London SW7 2PG, UNITED KINGDOM
Phone: +44 20 7594 9112
Fax: +44 20 7823 7685
Co-Auth: ANDREAS IBEN
Email: not available
Postal: Imperial College of Science, Technology and Medicine, UK
London SW7 2BT, UNITED KINGDOM
ABSTRACT:
In this paper we perform simulations with a stylized model of
the United Kingdom and Germany to show which generations might
be gainers, and which losers, from a transition from an unfunded
to a funded state pension system. We show that it is likely that
more than one generation will be direct losers as a result of a
transition (especially in Germany). If more than one generation
are direct losers, then, in order for those generations not to
be net losers, the chain of bequests (in the initial
equilibrium) needs to satisfy a simple condition, which we
derive and analyse.
JEL Classification: H55
______________________________
"Pension Prefunding, Aging, and Demographic Uncertainty"
International Tax and Public Finance, Vol. 8, No. 4, pp.
573-593, August 2001
BY: JUKKA LASSILA
ETLA, Research Institute of the Finnish Economy
TARMO VALKONEN
ETLA, Research Institute of the Finnish Economy
Contact: JUKKA LASSILA
Email: Mailto:jukka.lassila@etla.fi
Postal: ETLA, Research Institute of the Finnish Economy
Lonnrotinkatu 4 B
00120 Helsinki, FINLAND
Co-Auth: TARMO VALKONEN
Email: Mailto:tarmo.valkonen@etla.fi
Postal: ETLA, Research Institute of the Finnish Economy
Lonnrotinkatu 4 B
00120 Helsinki, FINLAND
ABSTRACT:
Pension prefunding can be used to smooth contribution rates in
economies where aging will increase pension expenditure. But how
extensive should prefunding be in a defined benefit pension
system when there is considerable uncertainty concerning future
mortality, fertility, and migration? We study the prefunding
rules in the Finnish earnings-related pension system with an OLG
simulation model. The results show that increasing the degree of
prefunding could yield a more even intergenerational outcome and
make future generations' position better, but it is quite
possible to overshoot and harm current generations too much.
Making the degree of prefunding fertility-dependent appears to
be a useful alternative. With declining fertility, current large
cohorts would pay modestly increased contributions. The
accumulated funds, however, will be huge in relation to the wage
bills of smaller future cohorts.
Keywords: Pensions, partial prefunding, ageing, demographic
uncertainty
______________________________
"How Can China Solve its Old Age Security Problem? The
Interaction Between Pension, SOE and Financial Market Reform"
Forthcoming in Journal of Pension Economics and Finance,
Vol. 1, No. 1, 2002
BY: ESTELLE JAMES
Consultant, Washington DC
World Bank
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=287392
Contact: ESTELLE JAMES
Email: Mailto:ejames@estellejames.com
Postal: Consultant, Washington DC
Washington, DC 20007 UNITED STATES
ABSTRACT:
Like most countries, China faces a rapidly aging population. In
fact, China is aging more rapidly than practically any other
country. In 1990 only 9% of China's population was over the age
of 65, but by 2030 this proportion will more than double, to
22%. More than a quarter of the world's old people will live in
China by 2030. And the absolute number of workers will actually
decline, as fertility rates are below replacement levels. While
population aging is a long run phenomenon, it has become
apparent even in the short run, as social security deficits
become larger and more widespread every year. Moreover, these
rapidly expanding pension obligations are especially troublesome
in China because, until recently, they were a liability of state
enterprises and a major obstacle to enterprise restructuring.
The Chinese government is well aware of the looming social
security crisis and is determined to do something about it.
Prefunding and unifying a fragmented system are at the heart of
its projected reforms. The plan is to set up individual accounts
for each worker, with funds that are productively invested. This
is similar to reforms that have been sweeping Latin America,
Eastern Europe and are now being considered in the United
States. Besides making the system more fiscally sustainable and
avoiding peak contribution rates, prefunding can be used to
increase saving that is committed for long term investments and
pension funds can be used as engines of financial market
development and corporate governance.
However, in China these reforms are retarded by three key
factors:
1) transition costs must be covered in any move toward
prefunding, and the Chinese government is still trying to figure
out how to accomplish this;
2) the current social security system is characterized by
fragmentation and decentralized administration, which lead to
principal-agent/moral hazard issues that make it more difficult
to cover transition costs, decrease early retirement and
increase compliance;
3) the funds that have accumulated have not been invested in
diversified portfolios by private competitive management and
have not earned a high rate of return.
This paper focuses on these three problems as well as the
complex interactions between pension, financial market and SOE
reform.
Part I describes the historical background of old age security
in China - how it was provided during the cultural revolution,
how this became inappropriate as China moved toward a market
economy, and the steps that were taken by the government during
the 1980's and early 1990's to resolve this inconsistency. Part
II describes the new multi-pillar system, including a large
prefunded defined contribution component, which was adopted, in
principle, in the mid-1990's. Part III analyzes three key
implementation problems that remain to be solved - the
transition cost conundrum, the tensions inherent in unifying a
fragmented system, and the difficulty in as well as the critical
importance of investing productively and earning a high rate of
return on the funds. We summarize the bold steps that the
government has announced during the past few months (2001) to
link pension, financial market and SOE reform. How these plans
will be effectuated remains to be seen.