The Ten-year Experience
Edited by Lucjan T. Orlowski
Chapter 13: Restoring hope, rewarding work: pension reforms in post-communist economies
Michal Rutkowski1 INTRODUCTION This chapter focuses on changes that are taking place in the retirement pension systems of post-communist economies. These changes are not replicas of earlier models. They entail serious and often unprecedented reforms in managing the allocation of people’s income during their lifetime. The common denominator of these reforms is the replacement of a vicious circle of low expected future pensions and declining contributions by a virtuous cycle of higher expectations and improved compliance that leads to higher savings, growth and, therefore, the actual value of future pensions. A key element of the change is an introduction of a close linkage between lifetime pension contributions and retirement benefits in a multipillar framework that comprises, inter alia, a mandatory funded pillar managed by the private sector. For current workers, pension reforms lead to an increase in the net present value (NPV) of future pensions (‘restoring hope’), and an increase in the pension levels of those who earn more and work longer (‘rewarding work’), while the minimum pension is preserved. ENTERING THE 1990s AND THE IMPACT OF TRANSITION Even though government intervention in the area of pensions in Europe has a 100-year history, the current systems were decisively shaped by changes introduced after the Second World War. The generation coming to retirement age in the next few decades had suffered during the war and was retiring in the midst of an economic and demographic boom. Many belonged to schemes that had become unfunded in the aftermath of the war. In...
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