The Political Economy of Pension Reform
Edited by Martin Rein and Winfried Schmähl
Chapter 10: Whose Money is it Anyhow? Governance and Social Investment in Collective Investment Funds
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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