Pensions: The international experience

Abstract

Prof Harold D Skipper of Georgia State University and David Hatton, CEO, ING Pension Trust provided perspectives on the challenges facing the pension system internationally.

Prof Skipper put forth that most pension systems in developed countries are in financial difficulty because of generous PAYGO benefits, coupled with low fertility rates and increasing longevity. Costs could be reduced to address increasing expenditures by lowering replacement rates, raising retirement age, reducing generous pensions and cost of living adjustments, taxing benefits, having a means test and placing greater reliance on funded schemes. Developed countries must enhance the future size and productivity of their work forces by reforming disability and unemployment laws, excessive regulation and tax laws that discourage entrepreneurship, rewarding child rearing, increasing immigration and encouraging longer work lives. Developing countries need to balance the roles of the public and private sectors. All successful pension systems require a strong and effective government that promotes economic growth and sound regulation.

Quoting the examples of Hong Kong, Chile and other countries, David Hatton said that the important issues that have emerged in pension reform are the importance of public confidence, the protection of members' rights and the need to create incentives to join pension schemes. Regulators and governments must make sure of the capability of pension providers. Pension providers must have knowledge of the industry, proven experience in administration, knowledge of trust responsibilities, fiduciary responsibility and ability to administer and keep records. To win people's trust, in Hong Kong the whole pension system is set up under a trustee arrangement under which there is a separation of functions. The quality of investments in the pension system must be regulated and customers must be offered intelligent investment policies. The lesson for India is that the quality of the provider, distribution, protection of member rights, tight regulation and regular reporting to the regulator are important issues in getting a good pension system.