Adequacy of Retirement Income after Pension Reforms in Central, Eastern and Southern Europe: Eight Country Studies (Directions in Development; Finance)

Adequacy of Retirement Income after Pension Reforms in Central, Eastern and Southern Europe: Eight Country Studies (Directions in Development; Finance) Review

The former transition countries of Central, Eastern, and Southern Europe (CESE) inherited defined benefit public pension systems financed on a pay-as-you-go basis. Under central planning, these systems exhibited fiscal strains which worsened during the early years of the transition and became unsustainable under a market economy and projected population aging. All CESE countries introduced reforms that varied with regard to the choice between parametric and systemic reforms and over the introduction of funding but typically focused on issues of sustainability rather than benefit adequacy. To assess benefit adequacy of the reformed systems against the imperative of long-term fiscal sustainability individual studies for nine CESE countries Bulgaria, Czech Republic, Croatia, Hungary, Poland, Romania, Slovakia, Slovenia, and Serbia have been prepared. Benefit adequacy is thereby assessed by the gross and net replacement rates for steady state conditions approximated by the year 2040 for both income and contribution record dimension of the insured. These nine case studies plus a summary are compiled in this book suggesting the following broad policy conclusions: (i) fiscal sustainability has improved in most study countries, but few are fully prepared for the inevitability of population aging; (ii) the linkage between contributions and benefits has been strengthened, and pension system designs are better suited to market conditions; (iii) levels of income replacement are generally adequate for all but some categories of workers (including those with intermittent formal sector employment or low lifetime wages) - addressing their needs will require macro and microeconomic initiatives that go beyond pension policy; (iv) further reforms to cope with population aging should focus on extending labor force participation by the elderly to avoid benefit cuts that could undermine adequacy and very high contribution rates that could discourage formal sector employment; and (v) more decisive financial market reforms are needed for funded provisions to deliver on the return expectations of participants.