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Latvian pension reform


  • Fox, Louise
  • Palmer, Edward


In 1995, Latvia became the first country in Central and Eastern Europe to implement parametric reform of the Soviet-style PAYGO pension system, and the first in the world to implement the"notional defined contribution (NDC) system"originally designed for Sweden. The Government's intention was to follow the overhaul of the PAYGO system with the creation of a funded second tier by 1998, but the reform has lagged. Public acceptance of the new system has been poor, and pressures for rollback of the reforms have grown. After such a splashy beginning why did the Latvian reform stall? What has been the net effect of the reforms after the roll backs? How did Latvia balance the difficult issues of system incentives, fairness, and affordability? What are the lessons of the Latvian experience with the NDC system for other reforming countries? These questions are the subject of this paper. It includes a description of pre-reform situation, describes the key provisions of the original reform, and discusses the subsequent amendments. The impact of the reform is assessed on the basis of macroeconomic and microeconomic simulations. On the basis of those, the reforms are evaluated and conclusions for other countries are drawn.

Suggested Citation

  • Fox, Louise & Palmer, Edward, 1999. "Latvian pension reform," Social Protection and Labor Policy and Technical Notes 20850, The World Bank.
  • Handle: RePEc:wbk:hdnspu:20850

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    Cited by:

    1. 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.
    2. Góra, Marek & Palmer, Edward, 2004. "Shifting Perspectives in Pensions," IZA Discussion Papers 1369, Institute for the Study of Labor (IZA).
    3. Holzmann, Robert, 2017. "The ABCs of Nonfinancial Defined Contribution (NDC) Schemes," IZA Policy Papers 130, Institute for the Study of Labor (IZA).
    4. Castel, Paulette & Fox, Louise, 2001. "Gender dimensions of pension reform in the Former Soviet Union," Policy Research Working Paper Series 2546, The World Bank.
    5. Börsch-Supan, A. & Härtl, K. & Leite, D.N., 2016. "Social Security and Public Insurance," Handbook of the Economics of Population Aging, Elsevier.
    6. World Bank, 2004. "Kazakhstan - The New Pensions in Kazakhstan : Challenges in Making the Transition," World Bank Other Operational Studies 14362, The World Bank.
    7. Christina Benita Wilke, 2008. "On the feasibility of notional defined contribution systems: The German case," MEA discussion paper series 08165, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    8. Axel Börsch-Supan, 2003. "What are NDC Pension Systems? What Do They Bring to Reform Strategies?," MEA discussion paper series 03042, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    9. Palmer, Edward, 2001. "The New Swedish Pension System," Discussion Paper 36, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    10. James, Estelle, 1998. "New Models for Old-Age Security: Experiments, Evidence, and Unanswered Questions," World Bank Research Observer, World Bank Group, vol. 13(2), pages 271-301, August.


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