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Swiss Chilanpore : the way forward for pension reform?

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  • Vittas, Dimitri
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    Abstract

    Many countries are considering far-reaching pension reform. This is happening in response to growing demographic pressures in some countries (especially in Western and Eastern Europe), to unsustainably generous benefits in others (especially in Latin America), or to failure to ensure the profitable investment of accumulated funds (as seems to be true with national provident funds in African countries). Given the worldwide interest in reform, one could ask: Is there a blueprint for pension reform? Can lessons learned in different countries be combined in a best-practice structure usable in different countries'pension systems? The author reviews the experience of Switzerland, Chile and Singapore, countries with relatively successful economies and pension systems. He suggests a multipillar pension system - which he dubs Swiss Chilanpore - that would blend the hard-headed softness of the Swiss, the expensive yields of the Chilean scheme, and the ruthless efficiency of Singapore. He emphasizes that: there is no perfect pension system - all systems suffer from the problems of moral hazard, adverse selection agency costs, and free riders; and all well-functioning pension systems require good government and good management. All pension systems have to cope with the problems of long-term uncertainty. For these reasons, the author favors a multipillar approach that diversifies across different providers. Swiss Chilanpore would have two compulsory and two voluntary pillars: a first pillar (drawn from the Swiss model) consisting of two parts, a flat-rate pension proportional to the length of a person's career and an earnings-related pension based on annual actualized lifetime earnings; a second pillar consisting of a central agency, which could be public or private, for record-keeping and other centralized functions, and private fund management companies for investing funds, the point being to keep operating costs down and achieve high investment returns; and third and fourth pillars based on occupational pension schemes and personal savings. The proposed structure would aim to combine the strengths and avoid the weaknesses of the three countries'systems, but the author cautions that no reform proposal would apply equally well in all countries, regardless of local circumstances and conditions.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1093.

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    Date of creation: 28 Feb 1993
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    Handle: RePEc:wbk:wbrwps:1093

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    Related research

    Keywords: Environmental Economics&Policies; Economic Theory&Research; Banks&Banking Reform; Information Technology; Pensions&Retirement Systems;

    References

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    1. Vittas, Dimitri & Skully, Michael, 1991. "Overview of contractual savings institutions," Policy Research Working Paper Series 605, The World Bank.
    2. Davis, E.P. & DEC, 1993. "The structure, regulation, and performance of pension funds in nine industrial countries," Policy Research Working Paper Series 1229, The World Bank.
    3. Vittas, Dimitri & Iglesias, Augusto, 1992. "The rationale and performance of personal pension plans in Chile," Policy Research Working Paper Series 867, The World Bank.
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    Cited by:
    1. Vittas, Dimitri, 1993. "The simple(r) algebra of pension plans," Policy Research Working Paper Series 1145, The World Bank.
    2. Queisser, Monika & Bailey, Clive & Woodall, John, 1997. "Reforming pensions in Zambia : an analysis of existing schemes and options for reform," Policy Research Working Paper Series 1716, The World Bank.
    3. Vittas, Dimitri, 1997. "The Argentine pension reform and its relevance for Eastern Europe," Policy Research Working Paper Series 1819, The World Bank.
    4. Vittas, Dimitri, 1993. "Options for pension reform in Tunisia," Policy Research Working Paper Series 1154, The World Bank.
    5. Prof. Dr. Robert Holzmann, 1994. "Funded and Private Pensions for Eastern European Countries in Transition?," Public Economics, EconWPA 9405004, EconWPA.
    6. Leechor, Chad, 1996. "Reforming Indonesia's pension system," Policy Research Working Paper Series 1677, The World Bank.
    7. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications, The World Bank, number 7336.
    8. Vittas, Dimitri, 1995. "Tunisia's insurance sector," Policy Research Working Paper Series 1451, The World Bank.
    9. Vittas, Dimitri & Michelitsch, Roland, 1995. "Pension funds in Central Europe and Russia : their prospects and potential role in corporate governance," Policy Research Working Paper Series 1459, The World Bank.
    10. Queisser, Monika & Vittas, Dimitri, 2000. "The Swiss multi-pillar pension system : triumph of common sense?," Policy Research Working Paper Series 2416, The World Bank.

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