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Rethinking the Welfare State

The Political Economy of Pension Reform

Edited by Martin Rein and Winfried Schmähl

In this book a distinguished group of contributors discuss the changing political economy of pension reform. They focus on those countries which have launched a significant reframing of their pension system. Each chapter provides a detailed review of recent pension reforms and offers institutional evidence of the extent to which these reforms suggest a redirection of the welfare state towards a more public-private mix of policies. The countries were selected to represent the variety of new directions which mature industrial countries as well as countries in transition have taken.
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Chapter 10: Whose Money is it Anyhow? Governance and Social Investment in Collective Investment Funds

R.Kent Weaver


R. Kent Weaver Over the past two decades, an aging population and budgetary stress have led to substantial changes in public pension systems throughout the world.1 Many countries initially responded to pension funding crises with incremental reforms, including retrenchment of existing pension commitments (for example, lowering replacement rates and increasing retirement ages in defined benefit systems) and by raising payroll taxes or increasing commitment of general tax revenues to pay pensions. A number of countries have also engaged in a more fundamental restructuring of their pension systems, both to deal with current problems in their public pension systems and to prepare for the coming demographic shock of the baby boom retirement. The reform that has received the most attention is a shift in some countries towards a pension system (or one tier in a multi-tier pension system) of compulsory, universal advanced funded ‘defined contribution’ individual accounts in which eventual retirement benefits are linked to an individual’s contributions over his/her working life and the accrued earnings on those contributions. A number of countries have also made changes in their defined benefit pensions, moving away from traditional pay-as-you-go financing practices towards building up collective investment ‘reserve’ or ‘buffer’ funds (Iglesias and Palacios, 2000; Palacios, 2000; Jacobs, 2002). Some of those countries, including Canada, New Zealand and Sweden, have also moved towards investing those surpluses in a broader array of instruments rather than the traditional low-return, low-risk lending to governments and (in some countries) housing authorities....

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