The growth of private pensionsystem, which has a history of approximately 10 years period in Turkey, was improved tremendously during the last decade. However, as a result of the fund returns remain low against the returns of alternative instruments because of the reasons such as high fund operating costs, funding cuts and poor fund management reasons, the interest in the system has decreased and the rapid growth process has slowed down over time. The components of this growth composition that occured in the last decade is important to illuminate the future of the system. The major components of the growth composition are the variables like the number of participants, participant shares, fund returns, fund operating expenses, funding cuts and the poor management which affects the amount of savings directly or indirectly collected in the system. Indeed, the state must have seen this development; it has made a new legislation that can steer individual savings to the private pensionsystem in the long-term (Table 2).
Whether income is measured according to individual or (equivalised) household income is crucial to examining female income patterns, especially in relation to marital status (Bardasi and Jenkins, 2002; Sefton et al., 2008). This is because people have access to household income rather than just personal, and thus is arguable a better reflection of their material living standards. By the household measure, married women would appear better off that using a personal income measure. When the UK pensionsystem was designed, the male breadwinner/ female carer model of the family was prevalent. Whilst men undertook a life time of paid work, women adopted a domestic role as married wife and mother. Thus they were financially dependent upon men. As a result, women were unable to build up an independent pension. To overcome this, it was assumed that women would share thei r partner s pension and thus they could receive a pension via their husband.
However, a shift towards NDC, or generally, defined-contribution scheme, regardless the financing mechanism, also means that the distribution of future pensions to a large extent mimics the distribution of wages, as there is no income redistribution in the pension formula. As a result, those with lower wages and shorter working careers, can expect pensions that represent lower fraction of their earnings compared to most of the defined-benefit systems. In that light, the need for a design of the mechanism in the pensionsystem that can offer protection against poverty in the old-age becomes an important component of the overall pension scheme design. Chło ń et al (2001) point out that there is an inherent conflict between the objective of reducing distortions caused by the pensionsystem on the labour market and the goal of providing adequate income. This conflict forces each country to develop its own structural compromise, which reflects its own unique social history, economic situation and political preferences.
individuals respond to lower replacement rates from mandatory pensions by making voluntary, private provision for retirement. Figure 3 compares coverage of voluntary private pensions with the size of the mandatory (public and private) replacement rate. There are two clear clusters of countries. One cluster includes mainly not only Southern European countries—Greece, Italy, Portugal, Spain and Turkey—but also Finland and Poland. These countries combine very low voluntary private pension coverage (less than 10 per cent) with relatively high mandatory replacement rates for average earners (measured on a prospective basis). A second cluster consists of eight countries that combine much lower mandatory gross replacement rates with relatively high voluntary private pension coverage. Unsurprisingly, half of this group are from the mainly English-speaking countries—Canada, Ireland, the UK and the US. However, Belgium, the Czech Republic, Germany and Japan show a similar relation- ship between private pension coverage and the scale of the mandatory pensionsystem. Second, the number of years over which people contribute to voluntary private pensions affects the contribution rate required to fill the pensions gap—that is, to deliver an overall—mandatory plus voluntary—replacement rate that equals the OECD average mandatory replacement rate. The left-hand side of Figure 4 shows the required contribution rate with a full contribution history—from age 20 to national normal pension age. The next entry on the chart shows the situation with five years missing from the contribution history, that is assuming people delay in starting their private pension until age 25. With 10 missing years—at the centre of the chart—the required contribution rate in the UK increases to nearly 10 per cent, compared with 7 per cent with a full career. With 20 missing years, contributions need to be nearly 15 per cent to plug the retirement-savings gap. In Ireland and Japan, the necessary contribution rates are a little below the rates for the UK. In Belgium, Germany and
their savings to compensate for that. Higher savings lead to higher level of capital and ulti- mately higher level of output and consumption. This option in a sense is equivalent to partial substitution of public pension for private defined contribution pensions, which is often discussed as an alternative pension reform option. Another interesting point about this policy scenario is that cohorts born before 1990, which already started their working career by the time the policy change is introduced, will face lower lifetime welfare. We cannot show them on this chart since we do not have their complete life cycles (period before 2010 is not modelled). The reason for this lower welfare is that their optimization choice (which they made before the new policy was introduced) becomes sub-optimal after the policy change.
The growth of funded pensions and the increasing emphasis on risk management should strengthen the role of pension funds as stable, long-term institutional investors. However, this requires (among other priorities) that investment strategies more fully address the specific nature and structure of pension fund liabilities, thereby differentiating pension funds from many other institutional investors. Rather than seeking to report a profit or to outperform various indices, the ultimate purpose of DB pension schemes is to meet their future pension liabilities. In particular, this requires that liabilities be covered by suitable assets (i.e., an ALM focus). However, pension fund investment and risk management practices have often focused more on asset returns than the actual liability structure of the pension balance sheet. In part, this is because assets are more easily adjusted in the short term to meet changing circumstances than pension liabilities, and because full actuarial recalculations typically only occur once every three years, with partial updates (e.g. reviewing assumptions such as inflation and prospective investment returns) only once a year or possibly every six months. One consequence of a limited focus on liabilities and ALM is that, in practice, many pension funds have pursued investment strategies measured relative to broad market indices. Recently, some pension funds and sponsors have also given thought to ways to manage liabilities more actively, including the conditionality of pension benefits. Such flexibility would again impact pension fund investment and risk management/ALM practices. Recent regulatory and accounting changes, as well as market developments, have put more focus on risk management and ALM practices. Pension fund managers wishing to limit the volatility of their regulatory funding ratios may hold a larger allocation of assets with a higher correlation (or matching) to the discount rate used for liabilities
On the contrary, the major savings in the expenditure for the short and medium run have been collected in different ways, and then, as previously explained, by the increase of the retirement age in the old-age pensions, as well as by the progressive abolition of the seniority pensions. But, especially on this point, the reforms aimed at increasing the minimum required age have created a quite confusing and contradictory framework, in some cases with really paradoxical effects. Instead of favouring the decision to stay at work, the persistent expectation of other reforms introducing stricter requirements for the retirement age induced many workers, already fulfilling the existing criteria, to withdraw from the labour force even some years before, with the consequence of further increasing the pension expenditure in the short-run, because of the payment of the pension benefits to relatively young pensioners with a still significant life expectancy.
The calculation of pensions is less favourable for insured persons under the 1999 PDIA. Old-age pension is calculated from the pension base in per cent, depending on number of completed years of service; 35 per cent in case of men and 38 per cent in case of women for the first 15 years of service, and 1.5 per cent for each additional year of service irrespective of gender. Under the proviso that the insured person is not subjected to pension disincentives, the pension in case of full pension qualifying period amounts to 72.5 per cent of pension base, instead of prior 85 per cent (1992 PDIA). Since the pension base under the 1999 PDIA is calculated out of best 18 consecutive years of service instead of prior best 10 consecutive years of service (1992 PDIA), the decrease in pensions is even higher. However, the most complex procedures of the 1999 pension legislation are revalorization of pension bases and indexation of pensions (cf. Stanovnik, 2004). Revalorization of the pension base in the Slovenian pensionsystem is a procedure of recalculating sources of pensionable income in the best 18 consecutive years of service using a vector of revalorization coefficients, in order to obtain the pension base. It is actually an instrument in the pensionsystem, used for obtaining horizontal equity between existing and new pensioners. Indexation of the pension, on the other hand, is a procedure of adjusting retirement benefits to existent economic developments in the country using a complex set of rules, where consumer price index is the floor and wage index is the ceiling for the growth rate of pensions.
The calculation of pensions is less favourable for insured persons under the 1999 PDIA. The old-age pension is calculated from the pension base in per cent, depending on number of completed years of service; 35 per cent in the case of men and 38 per cent in the case of women for the first 15 years of service, and 1.5 per cent for each additional year of service irrespective of gender. Under the proviso that the insured person is not su- bjected to pension disincentives, the pension in the case of a full pension qualifying peri- od amounts to 72.5 per cent of the pension base, instead of the previous 85 per cent (1992 PDIA). Since the pension base under the 1999 PDIA is calculated out of best 18 conse- cutive years of service instead of the previous best 10 consecutive years of service (1992 PDIA), the decrease in pensions is even higher. However, the most complex procedures of the 1999 pension legislation are the revaluation of pension bases and indexation of pen- sions (cf. Stanovnik, 2004). Revaluation of the pension base in the Slovenian pension sy- stem involves a procedure of recalculating the sources of pensionable income in the best 18 consecutive years of service using a vector of revalorization coefficients, in order to obtain the pension base. It is actually an instrument in the pensionsystem, used for obta- ining horizontal equity between existing and new pensioners. Indexation of the pension, on the other hand, is a procedure of adjusting retirement benefits to existent economic developments in the country using a complex set of rules, where consumer price index is the floor and wage index is the ceiling for the growth rate of pensions.
Lexington is a good example of when negotiations can work, and how those negotiations can lead to success in reducing the pension deficit while also having a long-term outlook. The approach Lexington took may not work for everyone. This plan specifically committed itself to saving the defined-benefit model of pension funds, whereas many believe that lasting solutions lay with a plan that ditches that pension model. (Gray) In order to create a sustainable pension fund for the future, steps have to be taken to look into what is fundamentally wrong with current pension funds and attempt to correct the mistakes. Earlier, it was stated that one of the most pertinent issues with current pension funds is the way in which the liabilities of the pension fund are valued. The discount rate currently is equivalent to a return, which it is not; the discount rate is a price. The growths in the present value of the liabilities that make up a pension fund are just as volatile as a long-bond portfolio. This is because the growth depends on interest rates. The current methods of valuing pensions have not only led to egregious mistakes in pricing, but also allow for corporations to manipulate pricing and ROA to eliminate pension expense and inflate earnings. These aspects combined have created a scenario where it is now arduous to successfully promote and instate any policy changes to price liabilities correctly.
This paper has considered a critical question in the design of pension reform: who should be permitted, persuaded or mandated to join the new pensionsystem. We showed a range of possible options, from an entirely voluntary switch to an entirely mandatory one, via schemes that are mandatory for some workers but voluntary for others. Pension reforms in 13 countries include all possible models. We argued that older workers are best excluded from reform because the economic returns from switching their pensions are likely to be too small to justify the efforts and that the required subsidies or guarantees to persuade them of the benefit of reform are likely to be high. However, having a defined cut-off age for switching is also problematic. It raises the issue of intergenerational equity, treating individuals on either side of the (necessarily arbitrary) cut-off age differently. It also assumes that cohorts are homogeneous in their attitudes to pension reform and to uncertainty of pension values, which is unlikely. For these reasons, we argue that voluntary switching is superior.
The introduction of a pensionsystem in which benets are constant and independent of the duration of activity beyond the normal retirement age (the end of the rst period) implies two types of taxes : rst, from the worker's point of view, the social security system implies a direct tax rate on human capital investment and labor supply. Second, from the rm's point of view this implies an undirect tax on labor demand because of the decrease in the worker's productivity. Obviously, this modies the agents' decisions. Combining equations (16) and (21), the equilibrium is dened as :
If s/he said “no” to the first bid, a lower bid was given and her/his willingness to pay was reconfirmed before the follow- up question was asked. This follow-up question was open ended. If s/he said “no” to the upper bound bid, then s/he would be asked to how much s/he is willing to pay. If s/he said “yes” to the lower bound bid then s/he would be asked to mention the maximum that s/he is willing to pay. Under this elicitation procedure, one potential limitation of contingent valuation method is related to the bias which may come from the starting point of the bid. In this study, this bias is reduced by using an open ended follow-up question (McCarthy, 2003). Figure 1 describes the structure of CV bid design. The analysis for willingness to pay for micro pension scheme employed a Logit regression model to estimate probabilities. The choice experiment conjoint analysis was used to evaluate and determine consumer preferences for certain product attributes of micro pension. Finally, examining the relationships between the socioeconomic characteristics of respondents and their product choice behavior is vital for developing product design. The basic description and the definition of explanatory variables used in the analysis are presented in Table 3. Likert items are the most common response formats used in perception and attitude scales. This study, attitudes towards retirement planning, trust of private sector financial institutions and employers preference for play a role of employer in pension provision mechanism factor measured and identified with 3+ items per each factor. Response category span a 5-point range of responses, (1 = strongly agree to 5 = strongly disagree). Likert scale values converted to binary dummy variable using "transform" tool of SPSS version 18.0.
UK is the first country attempting to establish social security system and welfare system in the world, with its current (2005) pensionsystem a united one covered under the “three pillars” model. Hu Yunchao points out that the UK pensionsystem is the second pillar and is unique with certain “complexities”. Pensionsystem, the second pillar, covers three parts. First, state-sponsored pension, that is, a plan connected to the national income, which is now generally known as the national supplementary pension; Second, employer-sponsored pension, namely, occupational pension scheme; Third, social business organizations or associations-initiated pension, namely, “accumulation system” programs, such as the individual pension scheme. The “three pillars” and the “complex- ity” of the second pillar are both formed through the continuous reform in the pension fund system by the British government. As a developed country in the Western, UK is more mature in raising pension fund, and can pro- vide certain reference to China . Li Cong (1989) proposed that in the 1870s, the British Government amended the State Earnings Related Pension Scheme (SERPS) and abolished the national-income-associated-pensionsystem that was conducted by the Labor Party. Social Security Act of 1986 began to try to transfer some welfare responsibilities to the private sector and the community, allowing the insurance companies and other financial institutions to provide “individual pension scheme”. The British Government also conducted tax-relief policies to reduce individual income tax in terms of individual-paid pension, maintaining and increasing fund value and pension benefit scheme, which was conducive to raising pension fund .
Licensed under Creative Common Page 499 the state budget as a subsidy known, but others may also consider it as "income out scheme". The measure of all the benefits of retirees recognized as a liability by the state to beneficiaries, represents pension expenses. Recognized obligations are financed. In normal conditions, when the pension scheme operates and conducts its goals, expenditures financed from revenues collected from newly collected contributions. However, due to many factors such income is not enough to cover all expenses for pensions. In these circumstances it is necessary finding another way of financing and this is funding through the state budget. Practically pensions financed by a source outside the scheme; So the money collected by taxation, instead of being used for the purpose of promoting economic growth, is lost in the coverage of "deficit" of the scheme. And the pension fund for distribution to beneficiaries is equal with:
such a fluctuation would be immaterial; see, e.g., Walker (2005) and Cairns et al. (2006). The second consideration comes from the relatively short horizon considered by most risk measures. In this sense, what is relevant for the pension regulator is to influence the distribution of final pensions. The efforts to influence the short-term distribution of the pension fund (even when the correct nummeraire is being used) are at best a suboptimal situation. The key input between these two distributions is the investment policy selected by the pension fund manager, defined as a contingent asset allocation plan (i.e., a function of time and the states of the world).
Experts claim that it is too early to assess the returns from the pensionsystem reform investments. Probably the best benefit of the undertaken pension reform can be seen in the improved institutional functioning, in terms of transparency of the institutions involved, as well as the contribution collection (Bornarova, 2010). Unfortunately, positive outcomes of the new pensionsystem are not visible in the other aspects of the reform (European Commission, 2007: 117). So far, access to the pensionsystem and exclusion of some vulnerable population groups from the second pillar are emphasised as key shortcomings in the reforms. Namely, older people continued to benefit only from the first pillar. Agricultural workers are also not covered with the second pillar since their contributions are registered according to their cadastral income, which is too low, and cannot be divided in the two pillars Additional vulnerable groups in relation to the pension insurance access include: unemployed people, redundant workers (laid-off workers), those working only with short-term employment contract for which the employees pay only personal tax, those working on the grey market, including particularly the ethnic groups (Roma, Albanians) who are far less likely to be in registered work, leading to increased risks of poverty in old age. Also, very frequent condition in the private sector (especially in the small and medium sized companies) is the underreporting of salaries, which contributes towards payment of the pension contribution to the minimally calculated base (and not on the real paid salary). This will have an effect on future pensions of huge number of people, who will retire with below the average or minimal pensions (European Commission, 2007: 122- 123). UNDP experts warned of this risk back in 1999 emphasising that the strength of the lobby for privatisation and funded schemes to replace pay-as-you-go state pensions should be tempered by acute concern about the implications for low-income earners and for income distribution. The three pillar schemes tend to erode the role of the state- guaranteed social protection and generate inequalities. Those with long-term, well-paid employment stand to benefit from such systems, but the poor and vulnerable who rely on more irregular or informal forms of employment are put at a disadvantage (UNDP, 1999: 62). Herein, there is no legislative framework for older people who are not recipients of pension or social assistance. 5 In the international legislation and EU these older people are entitled to social pensions
Due to the numerous simplifications of the standard model and its use of just a few parameters, it is useful to analyze in detail the characteristics of a defined contribution system. The chosen parameters of the standard model have a major influence on person- al accumulated savings. Although the detailed characteristics of the model parameters are very important, we will mention only their basis characteristics in order to determine the model validity range and the referent values of the parameters. The main goal of this ar- ticle is the construction of sensitivity factors that provide a way to analyze the influence of standard model parameters on accumulated savings. These sensitivity factors are used to determine changes in accumulated savings with small changes in parameter values and to analyze relations between standard model parameters for some reference values. We should stress that above mentioned approach to the calculation of accumulated savings can be employed only with respect to an average member of a pension fund, and is hard to reconcile with any individual member of a pension fund. However, since all pension schemes are long-term, most parameter deviations from those of an average member are usually reduced to an acceptable level.
The old-age dependency ratio is expected to sharply rise in all EU Member States but, compared to the EU 28 average, it will increase at a faster pace in the Central and Eastern European countries. For the next 15 to 30 years, the estimates of the indicators evolution are pessimistic. For the first 15 years, the growth of the old-age dependency ratio at European level will reach a growth of 10.3 p.p. compared with 2015, and will almost double in 30 years (an increase of 21.5 p.p.). In Romania, the situation is even more dramatic, the value of this indicator rises by 28.7 p.p. (from 25.2% in 2015 to 53.9% in 2050). In this case, the effect of the demographic ageing will be felt very strongly after 2030, when more numerous generations, born during 1967-1990, will begin to retire. In this context, the budgets of pension systems have to bear the pension payments for a larger number of pensioners, beneficiaries of the public pensionsystem, with a smaller number of taxpayers, employees and social security contributors. Statistical data already shows that this redistributive system can no longer operate on a sustainable basis in the face of the demographic problems.