Countries Must Reform Pensions, World Bank Says
Countries Must Reform Pension Programmes, World Bank Says
New York, May 24 2005 2:00PM
Rising divorce rates, increased budget deficits and people living longer overall should spur countries with pension programmes to reform them by diversifying their investments and taking into account real budgetary costs, the World Bank says in a new report.
"This report shows us that while pension reforms in most countries initially are driven by the short-term budgetary woes of keeping costly public systems afloat, the more important longer-term problems of worldwide aging and social change, along with changes in our global economy, are equally important to the debate," the Bank's Robert Holzmann says.
The report, "Old-Age Income Support in the 21st Century: An International Perspective on Pensions and Reform," provides a "multi-pillar" framework of solutions, such as diversifying pension systems into public elements that would maintain minimum living standards and adding privately managed and funded components.
Actual budget costs must be calculated in a comprehensive and transparent manner, it says, and those who create pension schemes must understand the standard actuarial principles of longevity involved.
Most public pension schemes have not been designed to deliver current benefit levels when confronted with present major demographic and economic changes, the report says.
To keep existing systems afloat many governments have chosen to cut public spending on keeping people healthy and educated, or to reduce pensions drastically for the succeeding generations of elderly, it says.
Current problems include having to cover more single elderly people who have been affected by higher divorce rates and who are getting lower pension payments, as well as more women with interrupted careers earning both lower wages and lower pensions.
With competition from globalization, workers have been moving in and out of formal, full-time employment to work part-time, temporarily, or to be self-employed, and have not qualified for full pensions, the report says.
If problems like these are not solved, falling economic growth and greater poverty may be the end result, it says.