Pension Reform Options in Hong Kong

2018 ◽  
Vol 29 (2) ◽  
pp. 245-258
Author(s):  
Che Cheong Poon ◽  
Fuk Kin Joe Wong
Keyword(s):  
Hong Kong ◽  
Interest Rates ◽  
Pension System ◽  
Pension Reform ◽  
Average Length ◽  
Pension Plan ◽  
Defined Benefit ◽  
System Research ◽  
Retirement Benefit ◽  
The Government

This article argues for the establishment of a defined benefit and partially funded universal pension system. The characteristics of this system represent a publicly managed mandatory contributory pension plan and the coverage of its benefits for all Hong Kong elderly aged above 65. By applying a mathematical model which links up the periodic savings during people’s working life, level of interest rates, average length of time in retirement, and the amount of retirement benefit payments, we calculated the possible scenarios for Hong Kong to reform its pension system. Research results suggest that the proposed system will be financially viable and sustainable provided both the government and its citizens are willing to pay for it.

Policy will strain the German pension system

2018 ◽  
Keyword(s):  
Interest Rates ◽  
Pension System ◽  
Pension Reform ◽  
Government Policies ◽  
Occupational Pension ◽  
Content Type ◽  
Low Interest Rates ◽  
Old Age Poverty ◽  
The Government ◽  
Pension Liabilities

Subject Germany’s pension system. Significance The pension system is under increasing pressure from demographic change, low interest rates and generous government policies. Impacts Increasing tax liabilities on pension incomes could increase the prevalence of old-age poverty. Rising pension liabilities in the occupational pension pillar could dampen business investment in years ahead. The question of pension reform could be the undoing of the government when the coalition parties meet to evaluate their work in late 2019.

Pension Reforms in India: Unresolved Issues and Policy Choices

2003 ◽  
Vol 28 (1) ◽  
pp. 11-26 ◽  
Author(s):  
Ramesh Gupta
Keyword(s):  
Pension System ◽  
Pension Reform ◽  
Policy Issue ◽  
Safety Net ◽  
Ageing Population ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Indian Government ◽  
Tax Subsidy ◽  
The Government

Ageing populations with increased life expectancy, low mortality rates, and decreasing and volatile returns in financial markets have made old age financial security difficult. Further, escalating costs of the pension system are forcing the Indian government to re- evaluate its programmes providing social security to its employees. The government has so far received three official reports (namely, OASIS, IRDA, and Bhattacharya) which have examined the issue and suggested several measures to provide a safety net to the ageing population. This paper examines the recommendations made in these reports and analyses the potential effects of them. It is organized around five policy questions: Should the reformed system create individual (funded defined-contribution) accounts or should it remain a single collective fund with a defined-benefit formula? The policy issue is who bears the risk - individual or society collectively. If individual accounts are adopted, should public or private agencies administer the reformed system? The issues that need to be resolved are: the magnitude of intermediation costs, agency problem (principal-agent fiduciary relationship), and the costs to administer the plan. Should fund managers of retirement savings be allowed to invest in a diversified portfolio that includes shares and private bonds? Equity markets are highly volatile and go through long periods of feasts and famine. Guarantees need to be provided in the form of minimum return or providing minimum basic pension on retirement and the bearer of these conjectural liabilities needs to be decided. What should be the level of government fiscal support in the form of tax subsidy, foregone tax collections, grants, administrative costs incurred by its agencies, and level of assumed contingent liabilities in case the government guarantees minimum pension? The crucial question is: how much and to whom is this subsidy accruing? Should the government move toward advance funding of its pension obligations for its employees or should these obligations continue to be financed on pay-as-you-go basis? The present problem in the government pension system is due to successive governments behaving like Santa Clauses ignoring the cost to the exchequer. Mere privatization would not be able to solve these problems. An all-embracing pension reform is not possible overnight. Efforts should be made to find ways of supporting new systems that may supplement existing systems. Suggested measures include: A tax-financed and means-tested system for lower income groups. To build second pillar, continue publicly managed public system for people earning less than Rs 6,500 a month; and for others who can bear the risk, appoint an independent regulator to help develop and supervise private sector in offering risk- return efficient pension products with tax subsidy already available under Section B0CCC. There is no moral justification in India for providing tax benefits to privileged groups to build third pillar. Government should refrain from frequent tinkering of tax laws to benefit a few. This paper also suggests specific fiscal and other measures for implementing a feasible and viable pension system in lndian conditions. For the present, the least that the government can do is to appoint an independent regulator who would also act as developer and make EPFO an independent agency having professional experts on its board.

The road ahead: should Hong Kong develop five pillars of old age protection?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gigi Lam
Keyword(s):  
Hong Kong ◽  
Old Age ◽  
Pension System ◽  
Pension Reform ◽  
Critical Time ◽  
Welfare System ◽  
Low Fertility ◽  
Content Type ◽  
The Government ◽  
Familial Dependence

PurposeThis paper demonstrates that Hong Kong currently provides four pillars of old-age protection: a publicly managed and noncontributory social security system (zero pillar), a funded contribution scheme (the second pillar), voluntary personal savings (the third pillar) and informal support, formal social programs and other individual financial assets (the fourth pillar). This paper aims at evaluating current four pillars of old-age protection and unraveling the deep-seated causes underlying the current old-age protection model by tracing a short history from 1965 onward. This paper aims at making recommendations about the current old-age protection model.Design/methodology/approachThe paper analyzes the current four pillars of old age protection. A comprehensive literature review was conducted covering relevant government reports, academics' journal papers and nongovernmental organizations' reports concerning the development of old age protection system from 1965 to the present.FindingsThe poverty rate of elderly residents was approximately 44.5% between 2009 and 2018, indicating that the four pillars of old-age protection had been unable to alleviate poverty in the aging population. The development of the current four pillars is attributed to a residual welfare system, the effectiveness of which is further dependent on familial dependence or welfare financialization. However, the reliability of familial dependence is affected by the declining coresidence rate and low fertility rate, whereas welfare financialization not only predominately favors financial institutions but also exacerbates income polarization. Therefore, the University of Hong Kong (2014) introduced an additional pillar of noncontributory social pension and assistance, which generated a contentious debate. The Hong Kong Special Administrative Region (HKSAR) government initiated a public engagement exercise on retirement protection in 2015 to assess public opinion on old-age protection. These consultation exercises were met with broad public disappointment because of the explicit reservations imposed by the government on the proposals.Practical implicationsAlthough the government's resistant attitude can be attributed to the residual welfare system, pension reform needs to be urgently implemented at three levels, namely strengthening of each pillar, emphasis on the pillar's interrelatedness and introduction of the first pillar.Originality/valueThe poverty of the elderly population is serious in Hong Kong. It is important to solve the deep-seated problems faced by the current old-age protection model. Hence, it comes a critical time to design a sustainable old-age protection model despite the heated discussion on the establishment of a central provident fund and pension system among officials since 1960s.

Getting More from Less in Defined Benefit Plans

2018 ◽  
Author(s):  
Daniel W. Wallick ◽  
Daniel B. Berkowitz ◽  
Andrew S. Clarke ◽  
Kevin J. DiCiurcio ◽  
Kimberly A. Stockton
Keyword(s):  
Interest Rates ◽  
Pension Plan ◽  
Defined Benefit ◽  
Portfolio Risk ◽  
Defined Benefit Pension Plan ◽  
Increased Risk ◽  
Investment Returns ◽  
Defined Benefit Plans ◽  
Asset Class ◽  
Reduced Costs

As global interest rates hover near historic lows, defined benefit pension plan sponsors must grapple with the prospect of lower investment returns. We examine three levers that can enhance portfolio outcomes in a low-return world: increased contributions; reduced investment costs; and increased portfolio risk. We use portfolio simulations based on a stochastic asset class forecasting model to evaluate each lever according to two criteria: the magnitude of impact and the certainty that this impact will be realized. We show that increased contributions have the greatest and most certain impact. Reduced costs have a more modest, but equally certain impact. Increased risk can deliver a significant impact, but with the least certainty.

scholarly journals You Win Some, You Lose Some: Pension Reform in Bachelet’s First and Second Administrations

2019 ◽  
Vol 11 (2) ◽  
pp. 204-230 ◽  
Author(s):  
Silvia Borzutzky
Keyword(s):  
Political Ideology ◽  
Pension System ◽  
Pension Reform ◽  
Presidential Power ◽  
Pension Policy ◽  
The Will ◽  
The Government ◽  
The Impact ◽  
Government Coalition

This article analyses and compares President Bachelet’s successful efforts to reform the Chilean pension system in 2008 and her failure to achieve the same objective in 2017. The article addresses the impact of electoral promises, policy legacies, policy ideology, presidential power, the role of the private sector, and the role that the government coalitions had in the process of pension reform during the Bachelet administrations. We argue that the 2008 reform was possible because of Bachelet’s personal commitment to reform and the presence of a stable governing coalition that had the will and capacity to legislate. In the second administration, although the policy legacies and ideology had remained the same, the reform did not materialise due to intense conflict within the administration and within the government coalition, as well as conflict between the administration and the coalition. These conflicts, in turn, generated a vicious cycle responsible for Bachelet’s declining popularity, limited political capital, and reduced support for reform. A stagnant economy further undermined these efforts. In brief, this article argues that when assessing success and failure in pension policy reform it is important to analyse not only policy legacies and political ideology but also the strength of the executive, the cohesion of the governing coalition, and the country’s economic performance.

Pension reform and return-to-work policies

2018 ◽  
Vol 18 (04) ◽  
pp. 500-514 ◽  
Author(s):  
Maria D. Fitzpatrick
Keyword(s):  
Return To Work ◽  
Labor Supply ◽  
Pension Reform ◽  
Pension Plan ◽  
Pension Plans ◽  
Public Pension ◽  
Work Lives ◽  
Retirement Benefit ◽  
Public Pension Plans ◽  
Social Security Earnings Test

AbstractFor many people, working after beginning retirement benefit collection is a way to enhance financial security by increasing income. Existing research has shown that retirees are sensitive to the Social Security earnings test, which restricts the amount of earnings some beneficiaries can receive. However, little is known about the effects of other types of policies on post-retirement employment. Instead of restricting earnings, many public pension plans restrict the number of hours beneficiaries can work. I use return-to-work rules limiting the number of hours of employment in a state's public pension plan and administrative data on employment and retirement to determine the rules’ effects on retirement decisions and post-retirement labor supply. I find that the increases in the maximum number of hours of post-retirement employment lead to no change in retirement benefit collection and to increases in part-time work among retirees. As such, these policies appear to be binding on the labor supply decisions of some employees. These results are relevant for designing policies aimed at extending work-lives or improving the health of pension systems.

scholarly journals Contribution volatility and public pension reform

2017 ◽  
Vol 17 (4) ◽  
pp. 513-533 ◽  
Author(s):  
TRAVIS ST. CLAIR ◽  
JUAN PABLO MARTINEZ GUZMAN
Keyword(s):  
Local Governments ◽  
Pension System ◽  
Pension Reform ◽  
Pension Plans ◽  
Fiscal Sustainability ◽  
Economic Downturn ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Unfunded Liabilities

AbstractIn the wake of the economic downturn of 2008–2009, researchers and policymakers have focused considerable attention on the extent of unfunded liabilities in US public sector pension plans and the implications for the long term fiscal sustainability of state and local governments. In response to the growth in liabilities, many states have introduced legislation that cuts back on defined benefit (DB) plan commitments, in some cases even shifting the pension system from a DB to a defined contribution or hybrid plan. This paper explores the factors that have led states to engage in pension reform, focusing particular attention on one factor that has only recently gained attention in the research literature: contribution volatility. While unfunded liabilities have significant long-term solvency implications, in the short term fluctuations in the amount of required contributions pose substantial difficulties for the ability of plan sponsors to balance budgets and engage in strategic planning. We begin by quantifying the volatility in the required contributions US states were expected to make between 2001 and 2013 and comparing the volatility of pension spending to other relevant tax and spending measures. Next, we describe the various types of pension reforms that states have implemented and examine the fiscal pressures facing those states that have engaged in reform. States with greater fluctuations in their required payments have been more likely to reduce benefits and increase employee contributions; they have also been more likely to institute these reforms sooner.

scholarly journals Informality and the Challenge of Pension Adequacy

2019 ◽  
Vol 19 (149) ◽  
pp. 1
Author(s):  
Christoph Freudenberg ◽  
Frederik Toscani
Keyword(s):  
Pension System ◽  
Pension Reform ◽  
Positive Impact ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Real Rate ◽  
Labor Market Reform ◽  
The Impact ◽  
Term Labor ◽  
Pension Adequacy

Past reforms have put the Peruvian pension system on a largely fiscally sustainable path, but the system faces important challenges in providing adequate pension levels for a large share of the population. Using administrative microdata at the affiliate level, we project replacement rates in the defined benefit (DB) and defined contribution (DC) pillars over the next 30 years and simulate the impact of various reform scenarios on the average level and distribution of pensions. In the DB pillar, the regressive minimum contribution period should be re-thought, while in the DC pillar a broadening of the contribution base and/or an increase in contribution rates would help increase replacement rates relative to the baseline forecast of 25-33 percent. A higher net real rate of return than assumed in the baseline would also have a significant positive impact. In the medium-term, labor market reform to tackle informality, and a broad pension reform to restructure the system and avoid competition between the DB and DC pillars should be a priority. Given low pension coverage, having a strong non-contributory pillar will remain important for the foreseeable future.

Argentina reforms advance but carry political cost

2017 ◽  
Keyword(s):  
Pension System ◽  
Pension Reform ◽  
Public Spending ◽  
Fiscal Deficit ◽  
Content Type ◽  
Pension Reforms ◽  
Debt Default ◽  
Political Cost ◽  
The Government

Significance Following its strong results in the October mid-term election, the government has been pressing tax and pension reforms and a new fiscal accord with provincial governors; all except the pension reform must now go to the Senate. The measures may ease investor concerns that the government’s inability to reduce the fiscal deficit could end in a new debt default. Impacts The tax reform’s effect on high tax pressure will be moderate at best. Provinces’ ability to reduce distortive taxes will depend on their ability to cut public spending. Changes to the pension system will prove especially conflictive politically.

scholarly journals Market design for the provision of social insurance: the case of disability and survivors insurance in Chile

2009 ◽  
Vol 9 (3) ◽  
pp. 421-444 ◽  
Author(s):  
GONZALO REYES
Keyword(s):  
Social Insurance ◽  
Pension System ◽  
Pension Reform ◽  
Insurance Company ◽  
Market Failures ◽  
Risk Pooling ◽  
Auction Mechanism ◽  
Fund Managers ◽  
Barrier To Entry ◽  
The Government

AbstractAs part of the pension reform recently approved in Chile, the government introduced a centralized auction mechanism to provide the Disability and Survivors (D&S) Insurance that covers recent contributors among the more than eight million participants in the mandatory private pension system. This paper is intended as a case study presenting the main distortions found in the decentralized operation of the system that led to this reform and the challenges faced when designing a competitive auction mechanism to be implemented jointly by the Pension Fund Managers (AFP). When each AFP independently hired this insurance with an insurance company, the process was not competitive: colligated companies ended up providing the service and distortions affected competition in the market through incentives to cream-skim members, efforts to block disability claims, lack of price transparency, and the insurance contract acting as a barrier to entry. Cross-subsidies, inefficient risk pooling, and regulatory arbitrage were also present. The Chilean experience is relevant since other privatized systems with decentralized provision of this insurance may show similar problems as they mature. A centralized auction mechanism solves these market failures, but also gives raise to new challenges, such as how to design a competitive auction that attracts participation and deters collusion. Design features that were incorporated into the regulation to tackle these issues are presented here.

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