The crisis and its Impact on pension schemes and benefits
The presentation will summarize the information available regarding the impact of financial and economic crisis on different types of pension schemes as well as on pension benefits of various population subgroups. To this end, the following questions of relevance to policy makers will be addressed:
- Does the current global economic crisis imply pension system face fundamentally new challenges or does it merely highlight existing problems?
- Does 'the crisis' provide an opportunity for re-evaluation of pension strategies, especially those concerning a move towards the private pension system, or should we stay on course towards complementary private pension provision?
Clearly, the fiscal sustainability of public pension schemes will be further exacerbated due to falling employment and the pension contributions and the interruption of the pension accumulation process. In many countries, the public pension expenditures will be higher, as the demand for social support during old age will increase. There is also a risk of higher expenditures on disability benefits and early retirement pensions.
The occupational and private pension schemes have been affected by the fall in the equity market, although the impact factor on individuals and their pension benefits is variable, depending on the 'retirement package' and on the share of equity in private pension portfolios. There have been further pressures on define-benefit type benefits and their funding and thus more closures of DB schemes can be expected. Declining annuity rates and falling pension pots will have long term implications for those currently retiring or those retired persons who had not annuitized their pension pot prior to the crisis. The crisis is triggering a lack of trust in savings and savings institutions, so there will be an unwillingness to contribute to voluntary supplementary schemes.
The impact on pension substitutes is also noteworthy and often overlooked in the discussion. Declining returns from personal savings accounts and declining value of housing assets will impact income and living standards of many older people. Whose pensions are likely to be affected most? The degree of impact will depend upon how close someone is to the retirement date, the public-private mix of the pension system, to the extent the private system is the defined-contribution type and also whether the scheme, public or private, already has solvency issues. The presentation will also summarize the policy responses, either under the stimulus package or under special adjustments to the pension schemes.
Asghar Zaidi is Director Research at the European Centre for Social Welfare Policy and Research in Vienna. Until recently, he has been a Senior Economist at the Social Policy Division, OECD, Paris, where he worked on issues related to pension policy and pensioner poverty in OECD countries. In the past, he worked as Economic Adviser at the Department for Work and Pensions of the United Kingdom, and as a researcher at the Social Policy Department of the London School of Economics and University of Oxford. His work interests include economics of ageing (particularly pension reforms and their impact on retirement incomes), implications of living costs of disability on poverty and resource measurement, and dynamic microsimulation modelling. He has been the Vice-President of the International Microsimulation Association since 2007. He is currently a research affiliate at the German Economic Research Institute (DIW Berlin), the Centre for the Analysis of Social Exclusion (CASE), London School of Economics, and the Centre for Research on Ageing, Southampton University.