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Reform strategiesReform strategies
IMF conference: Designing fiscally sustainable and equitable pension systems in emerging Europe in post-crisis world
Reform strategies Reform strategies ––the experience of the experience of
emerging European emerging European economies and economies and their effects on their effects on
sustainability andsustainability andsustainability and sustainability and equity: equity: Russia Russia
MikhailMikhail DmitrievDmitriev Mikhail DmitrievPresident of the Center for Strategic Research, Moscow
Washington D C January 11th 2012
Mikhail Mikhail DmitrievDmitrievCenter for Strategic Center for Strategic ResearchResearch
1
Washington D.C., January 11th, 2012ViennaViennaMarch 18, 2013March 18, 2013
CONTENTS
Challenges to the Russian pension t
Part 1system
Th i f th 2012 fP t 2 The genesis of the 2012 reform
Th i d f k
Part 2
P t 3 The revised reform packagePart 3
22
Part 1Part 1
CHALLENGES TO THE
RUSSIAN PENSION SYSTEM
33
WORKING AGE AND OLD AGE POPULATION IN RUSSIAPOPULATION IN RUSSIA
Прогноз численности населения (млн.)Росстат, 2010 г.
90 45
85
90
30
45
80
15
70
75
0
4
2011 2016 2021 2026 2031
Трудоспособное (левая ось) Старше (правая ось)Working age (lhs) Old age (rhs) 4Source: CSR
Working age population declines
Annual average growth projections for working age population
5
USA EU-15 Japan Russia
5Source: The Economist, CSR
THE IMPACT OF OLD-OLD
Share of the very old in Russia is much lower than in Europe and Japan It will remain low by comparison to most of advanced It will remain low by comparison to most of advanced economies By 2050 Russia may only catch up with the current y y y pnumbers of very old in the advanced European economies share of Russians above 80 years old will be at 7% (just as
in Italy today);in Italy today); only 1/4 of Russian pensioners will be above 80 years old
vs 1/2 in Japan
66
Growth of older-old (80 and above) In Russia and the EU by 2060Russia
In Russia growth of older-old (80 d b )(80 and above) during the next 50 years will be much slower than in any of the EU members
77Source: EU 2009 Ageing Report, CSR
Private sector international benchmarks for the sustainabilitysustainability of the pension systems are rather favorable for Russia
8Source: Allianz Global Investors. 2011 pension Sustainability Index 8
SUMMARY OF DEMOGRAPHIC CHALLENGESOF DEMOGRAPHIC CHALLENGES
Russia will suffer from one of the world’s fastest working age population decline However life expectancy particularly for males will stay However, life expectancy, particularly for males will stay much below the OECD Share of the very old will remain low by comparison to y y pmost of advanced economies Current retirement age (with the account of widespread early retirement practices) is very lowearly retirement practices) is very low Therefore, the forthcoming demographic deterioration could be offset by standard parametric reforms which have
9
y palready been carried out in majority of advanced economies 9
IMPACT OF RETIREMENT AGE INCREASE ON REPLACEMENT RATEON REPLACEMENT RATE
(64 for males and females by 2030)
38
40
34
36
до реформыBaseline
28
30
32до реформыпосле реформы
BaselineAge increase
24
26
28
1010Source: Gaidar Institute
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
THE BEST SOLUTION:t i fparametric reforms
Increase of retirement age (up to 64 by 2030) More than
enough for a Early retirement reform
Preservation of mandatory
enough for a sustainable solution Preservation of mandatory
funded pillarsolution
But retirement age increases are ruled out by politicians because such decision is highly
1111
p g yunpopular among the public
CHALLENGES IN THE FUNDED PILLAR
Negative real returnsg Lack of portfolio diversification Poor governanceg Regulatory inadequacy and fragmentation Ineffectiveness of supervisione ect e ess o supe s o
1212
RELATIVE SIZE OF THE FUNDED PILLAR: small in percent of GDP but substantial
with regard to domestic financial markets
Pension holdings (% of GDP)
1313Source: Goldman Sachs
FUNDED PILLAR AND FINANCIAL MARKETS:important for the bond market
and compatible with the equity free float
1414Source: Goldman Sachs
Part 2Part 2
THE GENESIS OF THE 2012 REFORM
1515
THE GENESIS OF THE CURRENT CRISIS:
Acceleration of benefits beyond the meansAcceleration of benefits beyond the means
WagesBenefits
Wages
Benefits
1616
Source: NAPF
IMPACT ON THE THE PENSION FUND:
Mounting deficit
Valorizationand additional indexationand additional indexation
Adjustments of the contribution rate
Deficit Surplus
1717
Source: NAPF
INITIAL REFORM PROPOSAL(J l 2012)(July 2012)
New PAYG formula: emphasizing the role of the years of service instead of contributionsthe years of service instead of contributions
Redirection of 6% funded contributions to PAYGPAYG
One-for-all voluntary opting out to the funded ill ith 6% t ib tipillar with 6% contributions
Reform of early retirement schemes
1818
PROPOSAL DECLINED(N b 2012)(November 2012)
The initial proposal faced a strong and well articulated criticism by representatives of: business communitybusiness community financial markets civic society the media parts of the Government (including MinFin and Ministry of
Economy) The World Bank and the OECD
The proposal was portrayed as counter-modernisational and driven by bureaucratic self-interests
19
interests In November 2012 it was turned down by V.Putin
19
Part 3Part 3
THE REVISED REFORM PACKAGE
2020
New PAYG formula: points system focused on voluntary
New PAYG formula:emphasis on voluntary delayed retirementp y y
delay of retirementemphasis on voluntary delayed retirement
Old age pension = Basic pension + Insurance pension
Basic =Age ratio(for voluntary delay
Normative *pension = (for voluntary delay
of retirement)basic pension *
`Insurance pension
=Age ratio (for voluntary delay *of retirement)
Years of serviceratio *
Current value of one point
2121Source: Ministry of Labor and Social Protection
For the pensioners retiring at the official age
l t t ill d ll d li t 20%replacement rate will gradually decline to 20%60%
40%
50%
30%
10%
20%
0%2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Пенсионеры, получающие трудовую пенсию по старости (базовый сценарий)Baseline scenario
2222Source: Gaidar Institute
Пенсионеры, получающие трудовую пенсию по старости, не участвующие в программе (альтернативный сценарий)
Пенсионеры, получающие трудовую пенсию по старости, участвующие в программе (альтернативный сценарий)
Pensioners at an official retirement age Pensioners who delayed retirement
The indexation of the basic pension will be detached from the indexation of thedetached from the indexation of the
insurance pension
2323Source: CSR
Pension Fund deficit under the flexible retirement age scenarioretirement age scenario
3 0%
2,0%
2,5%
3,0%
0,5%
1,0%
1,5%
-0,5%
0,0%
,
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
-1,5%
-1,0%
из-за изменения правил индексации пенсийIndexation adjustment
2424Source: Gaidar Institute
из-за стимулирования добровольного более позднего выхода на пенсию
из-за изменения правил индексации пенсий и стимулирования добровольного откладывания получения
Incentives for later retirementCombined
Individual replacement rates in 2022for wages below and above averageg g
½ fo av. Wage
Av. Wage
2 av Wages2 av.. Wages
3 av.. Wages
4 av .wages
Source: CSRSource: CSR
25
Early retirement reform:
i t th P i F d d fi itimpact on the Pension Fund deficit
Baseline scenarioBaseline scenario
Phasing out of early retirementAdditional
2626Source: NAPF
contributions
REFORM AGENDA FOR THE FUNDED PILLARFOR THE FUNDED PILLAR
Voluntary opting in and opting out Implementation of the new payment law Portfolio diversification Introduction of guarantee scheme Consolidation of regulatory and supervisory authority Strengthening of pension fund governance g g p g Elements of self-regulation Risk-based regulatory and supervisory framework
27
g y p y New form of commercial legal entity for private pension
funds 27
MANDATORY FUNDED PILLAR:OPTING OUT PRINCIPLE
outcome: downsized but not wiped outoutcome: downsized but not wiped out
Replacement rates for various contribution ratesContribution rate to DC 6% Contribution rate to DC 4%Contribution rate to DC – 6% Contribution rate to DC – 4%
Contribution rate to DC – 0%Contribution rate to DC – 2%
2828Source: NAPF
CURRENT SIZE OF THE MANDATORY FUNDED PILLARFUNDED PILLAR
Number of contributors who opted out to Distribution of assets
Private pension fundsPrivate asset managers
pthe private pension funds (mln)(bln rubles)
gState asset manager (conservative portfolio)State asset manager (extended portfolio)
2929Source: NAPF
(Est.) (Est.)
Thank you for attentiony
3030