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Written by Rob Smith , Formative Content. Featured: Workforce and Employment View all. Social skills are just as important as basic cognitive ones. Could flexible working be the solution to congestion in our cities? The reforms are encouraging more than the actuarially proportional to the postponement of retirement from 60 to 65 years, which can be seen as an attempt to reduce the frequency of early retirements. Against this trend would be only the countries of the Czech Republic and Korea for those with average wages or Ireland and Slovakia for lower wages.
It is important to recognize that for the mandatory social security system, it may be interesting to count on simple and uniform rules treating insured people of different profiles in the same way, and this aspect can be a powerful instrument of the income distribution. Curiously, Gragnolati, Jorgensen, Rocha and Fruttero have identified that the government does not always exercise the distributive function intentionally, although changes in rules tend to have this purpose.
The current global demographic and economic issues together with aspects related to the labor market have produced imbalances between revenues and expenditure of social security systems in several countries, which motivated parametric or structural funding reforms, the latter observed by H.
Zylberstajn, E. Zylberstajn, Afonso e Souza for the Brazilian case.
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Parametric reforms try not to break with the funding regime, with the rules of funding and benefits in force, changing only the parameters of the same structure. Pallares-Miralles et al. The Brazilian reform proposed in , as well as the changes started in the s referred to the qualifying conditions minimum age and contribution period and in the formula for calculating benefits accrual formula. In addition, the changes only applied to future benefits, since Brazilian consolidated jurisprudence that there is an acquired right for the benefits already granted, which may change only for monetary restatement.
This article shows the three main versions of the reform proposal, which was not yet approved at the time of its publication. The details about the evolution of the proposed parametric changes for the RGPS urban pensions are summarized in appendix. Social security reforms are usually motivated by the fiscal factor, and aspects related to the progressivity in income are always present. Considering this characteristic, we group the main recent national studies from a fiscal and distributive point of view, as well as from the point of view of the insured, used in this study.
The studies are separated based on the conclusions we understand as the most interesting within this classification, which is subject to overlapping. In this group of studies, the factors that affect the fiscal sustainability of the RGPS are highlighted, such as those of Leite, Ness and Klotzle for the period ; Matos, Melo and Simonassi for ; Miller and Castanheira for ; and Lima and Matias-Pereira for These studies use explanatory factors such as fertility and mortality rate, the real growth of contributions, the dependency ratio number of insured per taxpayer , informal work, unemployment rate, and minimum wage value.
They all conclude that the system is not sustainable, except for Matos et al. However, Lima, Wilbert, Pereira and Paulo agree with the majority of the authors and show that, even with the implementation of the social security welfare factor in the late s, the slowdown in expenditure growth did not lead to structural equilibrium.
For the authors, the factor affects only the pensions based on contribution period, which represent one-third of the total amount. This conclusion corroborates the arguments by Delgado, Querino, Rangel e Stivali , who said that the social security welfare factor had led to a large reduction in the average amount of the affected pensions, especially in the case of women.
The authors say, however, that it did not provoke an increase in the average age of retirement, emphasizing that it was the Constitutional Amendment EC 20, ,, which was truly responsible for the significant increase of the average ages.
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These studies point to demographic factors as responsible for the current growing deficits, such as the increasing dependency ratio among the elderly and the population aging rate, resulted in large part from the drop in fertility and mortality rates. The conclusion when analyzing these studies is that the insolvency of the RGPS is not explained only by endogenous factors such as benevolence in the rules of access to benefits or low contribution rates. The main explanation is the funding regime, which is strongly dependent on exogenous aspects such as demographic dynamics, economic growth, employment level, and degree of formality of the labor market.
A group of studies evaluates the progressivity reduction of inequalities or regressivity in the income distribution by the Gini Index decomposition. According to Rangel and Saboia , even after , with the limitation of the value of the social security tax INSS ceiling for the public servants insured by the federal RPPS because of the creation of the Funpresp pension fund , there would be no major impacts on regressive income distribution despite the reduction in public spending in the long term.
Recently, Caetano et al. According to current rules of the RGPS, Afonso observes the evidence of progressivity due to the better indicators obtained for women, less educated, lower income individuals, and for age pensions. Zylberstajn conclude that the original version of the reform the one presented by the executive branch at the end of , improves the actuarial fairness of the system and worsens the distributive progressivity of income.
They explain that the most significant disadvantages are for women, because of the loss of anticipation of five years in retirement, and the lower income insured population since the retirement by age in that version of the reform would have the grace increased from 15 to 25 years. Subsequently, the bill went through modifications from December to December Ferreira analyzed the modified version using the PNAD data and projecting the insured persons who would be retired over a years horizon. She compared the data considering the rules in force and the rules provided in the two versions of the PEC The author segregated the insured by income, occupation, region, ethnicity, and education, analyzing who would be able to retire and who could no longer retire with the changes.
The conclusion was that women and the population in the rural areas would be the ones to lose more benefits in the original proposal presented by the executive branch at the end of As for the version modified in the Congress and debated at the end of , the lost observed before for the rural population was remedied.
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Regarding the decrease in the amount of the initial monthly income replacement , the first version would produce more considerable losses mainly in the population with income ranging from one to five minimum wages. However, the study did not analyze the new changes that would occur at the beginning of , when the legislative branch reestablished the grace from 25 to 15 years. Using the indicators replacement ratio, internal rate of return, and actuarial balance rate, they concluded that the welfare factor penalizes early retirements more than the actuarial neutrality, that is, it reduces the benefit value more than necessary by the marginal actuarial balance between contributions and benefits.
However, according to Caetano et al. Zanella et al. They calculated the optimal periods for the insured in the RGPS to come out of retirement which would be declared unconstitutional by the Federal Supreme Court on October 26, Based on the incentive represented by the gradual improvement of the social security welfare factor applied to the average of the wage contribution, the authors used the indicators replacement ratio, internal rate of return, and effective and required rate to find that the internal rate of return would be maximized on average at four years and 10 months after retirement men or 7 years and 10 months women.
Rodrigues and Afonso adopted the replacement ratio indicator using actuarial annuities with multiple lives to calculate the total benefit original retirement, special benefit, and supplementary retirement in the scenarios before and after the change with the implementation of Funpresp. Only very unlikely conditions, with a real rate of return on assets of more than 9. These studies corroborate, directly or indirectly, the importance in establishing the rate of return assumption or the discount interest rate.
Although not a study emphasizing the insured point of view but the fiscal one, Caldart, Motta, Caetano, and Bonatto , when analyzing the robustness of the actuarial result of the RPPS in the state of Rio Grande do Sul, concluded that the interest rate is more relevant than other assumptions. The authors empirically observed the importance based on the sensitivity of the results, first to the interest rate, wage growth rate and actuarial table survival and death probabilities.
As for a more-in-depth theoretical study, Benelli, Siviero, and Costa offer a broad bibliographic review and detailed theoretical explanations about the various actuarial assumptions and their impacts on the insured and the institution. In the previous year, the issue was discussed in public consultation with actuary professionals, with subsequent normatization by the Actuarial Pronouncements Committee of the Brazilian Actuarial Institute IBA, to act in private pension entities. In and , the Ministry of Social Security opened a public consultation and created working groups to propose amendments to the norms that deal, among other things, with the parameters chosen for the assumptions and hypothesis of the actuarial evaluations of the RPPS, states, federal district, and municipalities.
Regarding the RGPS, there are no specific norms to address these benchmarks, perhaps because the financial regime adopted is pay-as-you-go, although there are annual long-term actuarial projections made and published in the Budget Guidelines Law. Professionals and academics involved in social security often use terms such as financial and actuarial balance, solidarity and mutualism.
These concepts are applied to the Brazilian context of social security by the perspective of the system as a whole, but from the point of view of the insurer and not of the insured, as explained by Nogueira The point of view when analyzing the system may offer conflicting objectives between the concepts of actuarial neutrality and actuarial fairness detailed by Queisser and Whitehouse Thus, we calculate the gain or loss of actuarial wealth in the situation of working longer due to the change of rules. By the value of money in time, postponing retirement reduces the wealth, in addition to the fact that it will be received for less time.
However, if the benefit is postponed there is an incentive to increase the replacement initial amount of the benefit , in some cases, the second effect may surpass the first. If the incentive is made in a way that does not generate increase or decrease of wealth, the effects cancel out, and the new regime will be of actuarial neutrality. The changes in the rules proposed in the PEC are summarized in box 1. If on the one hand, they increase the contribution time and the minimum age for the planned retirement, on the other they usually change the amount of the benefit for less in some cases, curiously, for more.
From this scenario of changes, we calculated the combined effect of the change in the initial date and initial amount of the benefit in wealth, identifying those most affected. The transition rule is made with the objective of no abrupt changes mainly in the rules of benefits for the insured who are in the imminence of acquiring the right to the planned retirement. Therefore, it is important to evaluate whether actuarial neutrality occurs mainly for the group that is close to retiring, and whether there is homogeneity for the negative changes in actuarial wealth in the other insured profiles.
Source: Elaborated by the authors. The cash flow and present actuarial value were based on the non-behavioral micro-simulations model for representative individuals, with different characteristics of gender, age and contribution period, in addition to the wage contribution a proxy for income profile. Calculations were made for thousands of INSS profiles of insured people who have not yet met the requirements for planned retirement and are subject to the transition rule.
The contribution period varied from 15 years grace of contributions. The age varied from 45 years for men or from 40 years for women, because at these ages the individuals will be 65 or 62 years old, respectively, when the transitional period for minimum age will be equivalent to the definitive rule. Box 2 shows the profiles of the insured and the actuarial assumptions used for the projections on the base date of the change of the rules with the approval of the reform.
The assumptions related to family composition, percentage of insured with spouse or partner and their age, as well as the number of minors and the age of the youngest child, were chosen according to the standard generally used and the characteristics closest to the insured population an example of study on the variation of the assumptions regarding family composition is the work by Freire and Afonso, It is important to make observations regarding some international studies presented here, such as the work by Queisser and Whitehouse The authors suggest that the rate of wage growth should be defined as the one used for the discount rate.
In our point of view, this suggestion is not compatible with the Brazilian context, due to the high-interest rates in the country.
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