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Benefit Security Pension Fund Guarantee Schemes

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  • Fiona Stewart
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    Abstract

    The issue of pension benefit security has returned to the foreground of both economic and political debate in many OECD countries - following high profile losses of pension benefits due to plan sponsors becoming bankrupt and leaving underfunded pension schemes. Some countries have dealt with pension benefit protection via strong funding rules (the route taken for example by the Dutch authorities). Two OECD papers examine other methods for increasing benefit security in retirement – via pension benefit guarantee schemes (such as the Pension Protection Fund recently introduced in the UK) and the position of pension creditors within insolvency proceedings (which has been examined, for example, in Canada). Pension Benefit Guarantee Schemes are insurance type arrangements - with premiums paid by pension funds - which take on outstanding obligations which cannot be met by the insolvent plan sponsors. Arguments for such schemes stem from ‘market failure’ (with workers not fully understanding the trade off between pensions – deferred wages – and current income), and diversification– as most workers are highly exposed to the insolvency of the plan sponsor (in terms of current and retirement income) and cannot properly diversify this risk (particularly where the pension is funded by book reserves). However challenges to these schemes exist – mainly in the form of moral hazard and adverse selection – which are problems for all insurance contracts, and potentially in the form of systematic risk (as bankruptcies tend to be correlated, as does pension underfunding across schemes, and indeed as are these two factors). Though setting up benefit guarantee schemes successfully is often a challenge in practice (particularly maintaining true political independence), they can be run successfully - as the funds operating in practice show. Though the problems of the USA guarantee scheme, the PBGC, are well known, similar schemes also exist in Sweden, Germany, Ontario – Canada, Switzerland and Japan and one has recently been launched in the UK. Lessons can be learnt from all these schemes - for example the UK’s PPF is working to apply fully risk adjusted premiums, whilst the Swedish fund can take a lien on plan sponsor’s assets to protect its own financial position. One of the key conclusions from the OECD’s report is that, to work effectively, these schemes must have suitable independence and powers to set and collect appropriately risk-adjusted premiums – but they also need to be considered along with other benefit protection policies (notably effective funding rules). Systèmes de garantie des fonds de pension La question de la sécurité des prestations de pension est revenue au premier plan du débat, tant économique que politique, dans de nombreux pays de l’OCDE – suite à des affaires dont on a beaucoup parlé où les prestations ont été perdues, les promoteurs des plans ayant fait faillite et laissant des systèmes de pension sous-capitalisés. Certains pays s’efforcent de protéger les prestations de pension en imposant des règles de financement strictes (c’est la voie qu’ont empruntée les autorités néerlandaises, par exemple). D’autres méthodes peuvent s’envisager pour améliorer la sécurité des prestations en vue de la retraite et deux documents de l’OCDE les examinent – elles concernent les systèmes de garantie des prestations (comme le Pension Protection Fund qui a récemment été mis en place au Royaume-Uni) et le rang de créanciers des participants aux plans de pension dans les procédures de mise en liquidation (question à laquelle on a réfléchi, par exemple, au Canada). Les systèmes de garantie des prestations de pension sont des dispositifs de type assuranciel – les primes sont acquittées par les fonds de pension – qui se substituent aux promoteurs des plans, devenus insolvables, pour assumer leurs obligations. Les arguments qui militent en faveur de ce type de dispositif sont la défaillance du marché (les travailleurs ne perçoivent pas pleinement la relation entre les pensions – salaire différé – et le salaire courant), et la diversification – la plupart des travailleurs sont fortement exposés au risque d’insolvabilité du promoteur du plan (en ce qui concerne leur revenu courant et en ce qui concerne leur revenu au moment de la retraite) et ne peuvent pas convenablement diversifier le risque (en particulier lorsque les pensions sont financées sur des réserves comptables). Cependant, ces dispositifs soulèvent des problèmes – qui tiennent essentiellement à l’aléa moral et à l’anti-sélection – qui sont des problèmes qui se posent pour tous les contrats de type assuranciel, outre, potentiellement, un risque systémique (il tend à y avoir corrélation entre les faillites, ainsi qu’entre les cas de sous-financement des pensions, de même qu’entre ces deux facteurs). Si la mise en place de systèmes de garantie des prestations peut souvent constituer un défi (en particulier pour ce qui est de maintenir une véritable indépendance politique), de tels systèmes peuvent fonctionner avec succès – ainsi, d’ailleurs, que le montrent les fonds existants. On connaît bien les problèmes du système de garantie, le PBGC, qui existe aux Etats-Unis, mais il existe des dispositifs de ce type également en Suède, en Allemagne, au Canada (Ontario), en Suisse, au Japon et, depuis peu, au Royaume-Uni. On peut tirer des enseignements de tous les dispositifs qui existent – par exemple, au Royaume-Uni, le PPF prévoit d’appliquer des primes totalement ajustées en fonction du risque, tandis qu’en Suède, le Fonds de garantie peut prendre une sûreté sur les actifs du promoteur du plan afin de protéger sa propre situation financière. L’une des conclusions essentielles du rapport de l’OCDE est que, pour être efficaces, ces dispositifs doivent jouir d’une indépendance suffisante et doivent pouvoir fixer et appliquer des primes qui tiennent convenablement compte du risque – mais il faut aussi les envisager en association avec d’autres mesures de protection des prestations (en particulier des règles de financement adéquates).

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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Working Papers on Insurance and Private Pensions with number 5.

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    Date of creation: Jan 2007
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    Handle: RePEc:oec:dafaab:5-en

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    Keywords: pension benefit; guarantee scheme; insolvency insurance; pension scheme; PBGC; PPF; prestation de pension; assurance insolvabilité; système de pensions; PBGC; PPF; système de garantie;

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    Cited by:
    1. Ian Tower & Gregorio Impavido, 2009. "How the Financial Crisis Affects Pensions and Insurance and Why the Impacts Matter," IMF Working Papers 09/151, International Monetary Fund.
    2. Mario Jametti, 2007. "Underfunding of Defined Benefit Pension Plans and Benefit Guarantee Insurance - An Overview of Theory and Empirics," Working Papers 2007_1, York University, Department of Economics.
    3. Chen, An & Uzelac, Filip, 2014. "A risk-based premium: What does it mean for DB plan sponsors?," Insurance: Mathematics and Economics, Elsevier, vol. 54(C), pages 1-11.

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