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The Perspective of Pension System Reforms in the New Member States

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  • Mejra Festić
  • Jože Mencinger

Abstract

Because of growing awareness of financial needs for public pensions, attention has been focused on privatisation of the pension systems. While the privatisation of pension funds can encourage development of capital markets in New Member States, equity investment in transition economies is even more volatile than in the "old" capitalist countries. Privatised pension system coincides with investment risks, higher administrative costs, and inability of private markets to provide retirees with affordable, indexed and certain annuities. Namely, private sector may not provide enough investment projects to efficiently absorb mandated pension savings and the expected pension income is subject to a number of risks: poor and volatile investment returns, longevity, and inflation eroding the purchasing power of pensions. Indeed, the PAYG system appears to be the only viable system to perform well in terms of risk and volatility of returns.

Suggested Citation

  • Mejra Festić & Jože Mencinger, 2009. "The Perspective of Pension System Reforms in the New Member States," Prague Economic Papers, University of Economics, Prague, vol. 2009(4), pages 291-308.
  • Handle: RePEc:prg:jnlpep:v:2009:y:2009:i:4:id:355:p:291-308
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    References listed on IDEAS

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    1. Olivia S. Mitchell, 1998. "Administrative Costs in Public and Private Retirement Systems," NBER Chapters,in: Privatizing Social Security, pages 403-456 National Bureau of Economic Research, Inc.
    2. Phil Agulnik & Julian Le Grand, 1998. "Tax relief and partnership pensions," Fiscal Studies, Institute for Fiscal Studies, vol. 19(4), pages 403-428, November.
    3. Modigliani,Franco & Muralidhar,Arun, 2005. "Rethinking Pension Reform," Cambridge Books, Cambridge University Press, number 9780521676533, December.
    4. Olivia S. Mitchell, "undated". "New Trends in Pension Benefit and Retirement Provisions," Pension Research Council Working Papers 2000-1, Wharton School Pension Research Council, University of Pennsylvania.
    5. Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1, January.
    6. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
    7. Stiglitz Joseph, 2005. "Securing Social Security for the Future," The Economists' Voice, De Gruyter, vol. 2(1), pages 1-7, February.
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    Cited by:

    1. Mureşan Gabriela-Mihaela & Armean Gabriel, 2016. "Trust – the Intangible Asset of Policyholder Behavior on Insurance Market," Scientific Annals of Economics and Business, De Gruyter Open, vol. 63(s1), pages 125-136, December.

    More about this item

    Keywords

    cyclicality; pay-as-you-go; ageing of population; pension funds; financial burden;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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