1. 1
Global Patterns of Pension Provision
Robert Palacios, Head, Pensions Team World Bank
Core Pension Course
Washington DC, March 2013

2. 1689 1889 1982 Today
Pension evolution (one version)

3. THE RISE OF DB SCHEMES IN 1935
“…the old age pensions he called for
came to be financed with wage based
taxes was an accident.”

4. THE RISE OF DB SCHEMES IN 1975

5. THE RISE OF DB SCHEMES IN 2012

6. Life cycle of PAYGO scheme
6
-30
-20
-10
0
10
20
30
40
50
60
0 0.05 0.1 0.15 0.2
elderly/workers
surplus/revenues

7. OECD countries at end of the life-cycle
7
0 50 100 150 200 250 300
Switzerland
USA
New Zealand
Germany
Denmark
UK
Finland
Sweden
Italy
Unfunded pension liabilities as share of GDP (retirees only)
Source: Beltrametti and De la Valle (2011)

8. Developing country IPDs
8
0
100
200
300
400
500
600
0 2 4 6 8 10 12 14 16
UnfundedPensionLIabilitiesas%ofGDP
Pension spending as % of GDP

9. Aging and pension spending
9

10. Parametric and systemic reforms*
 Parametric
 Raising effective retirement ages and linking
with longevity
 Raising contribution rates
 Reducing future accrual rates and taking into
account longer wage periods
 Moving to price indexation
 Notional accounts or NDCs
 Replacing part or all of DB with DC
*(Integration of civil service schemes to be discussed in later session)
10

11. 1
2
3
6
7
8
12
14
15
17
21
23
24
27
28
29
28
27
28
0
5
10
15
20
25
30
35
1980 1988 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2011 2012
NumberofCountries
Chile
Peru Uruguay
Mexico
Bolivia
El Salvador
Hungary
Kazakhstan
Poland
Sweden
Hong Kong
Costa Rica
Bulgaria
Croatia
Estonia
Nigeria
Slovakia
United Kingdom
Argentina
Australia
Dom. Rep.
Kosovo
Romania
Macedonia
Argentina
closed
Hungary
closed
Czech Republic
THE RISE OF DC SCHEMES:
FROM SANTIAGO TO PRAGUE

12. 12
Share of benefit from DC
Colombia Costa Rica
0
0
0.25
0.5
0.75
1
0.5 1 1.5 2 2.5 3
Private DC
Minimum
pension
0
0.25
0.5
0.75
1
0 0.5 1 1.5 2 2.5 3
Private DC
Public DB scheme
Proportion of benefit from private DC vs public DB
Low income Low incomeHigh income High income

13. DC schemes in 2012
13

14. 14
Mandated pensions today
Publicly-
managed DB,
PAYG
43%
Publicly-
managed DC
7%
Public PAYG DB
+ Private funded DC
18%
Publicly- managed
partially funded DB
31%
Privately-
Managed, funded DC
4%
Note: Select countries: only national contributory schemes included

15. But most workers not covered…
15
Coverage, per cent
(number of countries)
80 to100 (15)
60 to 80 (21)
40 to 60 (15)
20 to 40 (26)
0 to 20 (37)

16. Contributory scheme coverage
16
y = 0.0002e1.8464x
R² = 0.7712
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2.0 2.5 3.0 3.5 4.0 4.5 5.0
Activemembers(%WorkingAgePopulation)
Log Income per capita
Active coverage vs Income per capita

17. Elderly coverage
17

18. RETURN OF SOCIAL PENSIONS

19. MATCHING CONTRIBUTIONS
Countries attempting
coverage expansion by
matching contributions of
informal sector workers:
China, Colombia, India,
Mexico, Peru, Thailand,
Turkey, Vietnam

20. 20
Summary and looking forward
 For a century, public DB plans spread across the globe
and dominated pension provision but…
 Unfunded liabilities are catching up with maturing systems
as the demographic transition unfolds resulting in cuts
 In the last two decades, prefunding and especially DC
plans has taken on greater role raising new issues of
costs, investments, payouts and supervision
 Coverage has emerged as the key issue for most low and
middle income countries with policy discussion centered
on the potential role of social pensions and innovative
ways of incorporating the informal sector workforce
 What will younger countries learn from the experience of
the older countries?

21. Thank you!
See us at
www.worldbank.org/pensions
21