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August 2000 Private pension funds are neither necessary nor sufficient for capital market development. But if they are subject to conducive regulations, adopt optimizing policies, and operate in a pluralistic structure, they can have a large impact on capital market modernization and development once they reach a critical mass. The link between pension reform and capital market development has become a perennial question, raised every time the potential benefits and preconditions of pension reform are discussed. Vittas asks two questions. First, what are the basic feasibility preconditions for the successful launch of a pension reform program? And second, what are the necessary impact preconditions for the realization of the potential benefits of funded pension plans for capital market development? His main conclusion is that the feasibility preconditions are not as demanding as is sometimes assumed. In contrast, the impact preconditions are more onerous. The most important feasibility precondition is a strong and lasting commitment of the authorities to maintaining macroeconomic and financial stability, fostering a small core of solvent and efficient banks and insurance companies, and creating an effective regulatory and supervisory agency. Opening the domestic banking and insurance markets to foreign participation can easily fulfill the second requirement. The main impact preconditions include the attainment of critical mass; the adoption of conducive regulations, especially on pension fund investments; the pursuit of optimizing policies by the pension funds; and a prevalence of pluralistic structures. Vittas also argues that pension funds are neither necessary nor sufficient for capital market development. Other forces, such as advances in technology, deregulation, privatization, foreign direct investment, and especially regional and global economic integration, may be equally important. But pension funds are critical players in symbiotic finance, the simultaneous and mutually reinforcing presence of many important elements of modern financial systems. They can support the development of factoring, leasing, and venture capital companies, all of which specialize in financing new and expanding small firms. This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to study the impact of institutional investing on capital markets. The author may be contacted at dvittas@worldbank.org.
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Recent social security reform has significantly improved the long-run sustainability of the pension system. However, the pension system continues to serve as an important barrier to a more rapid expansion of the formal-sector economy in two ways. First, early-retirement incentives (including severance payments) continue to push many incumbent formal sector workers into the informal sector, often at ages as young as 40-45. While new labour force entrants face a much higher retirement age, policies for incumbents are fiscally expensive, inequitable, and serve to swell the ranks of the informal sector. Second, even when the transition to the new pension rules is complete, net replacement rates will remain very high by OECD standards, requiring high social security contribution rates that make it too expensive for firms to employ low-skilled labour in the formal sector. Thus, further pension reform is one of the keys to overcoming Turkey's economic duality. Finally, since the pension system does not cover the informal sector, it does little to alleviate poverty among the wider population of older people. This paper discusses a number of reforms that would increase the retirement age, reduce inter-generational inequities, and permit a significant cut in the tax wedge on labour, while better addressing old-age poverty concerns at all levels of income.
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Extrait du Bulletin de la Commission centrale de statistique, t.XXII.
Pension --- Enseignement
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"This note adds to the existing literature by examining the enabling conditions for the creation of mandatory funded pension funds, and identifying additional factors that are important to consider in the early stages of the reform. The note stresses the importance of some factors that had already been identified in previous literature but not fully observed by reforming countries, including the strong and lasting commitment of the authorities with the reform, the fiscal commitment with the reform, and some basic financial infrastructure. The analysis is also extended to analyze the role of supervision in the early stages of the reform and the role of the government in fostering the development of the domestic capital market. "--World Bank web site.
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Impavido surveys the empirical literature on the relationship between governance of public pension fund management and investment performance. He makes a preliminary attempt to identify good governance practices and distill governance guidelines aimed at reducing the political risk that is associated with central, public pension fund management. The author highlights the need for further work to support the development of a satisfactory set of governance guidelines. This paper--a product of the Financial Sector Operations and Policy Department--is part of a larger effort in the department to study the effects of contractual savings on financial markets.
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