1	Bank Assistance to Pension Reform and the Development of Pension Systems Emily S. Andrews World Bank, IEG (retired) January 19, 2006
2	Main Messages The Bank has largely supported a flexible, multi-pillar pension framework, consistent with Bank strategy, and the majority of the ratings for the Bank’s assistance in pension reform have been satisfactory The Bank should pay greater attention to parametric reforms and to exploring options to expand the safety net for those not covered by the pension system The Bank needs guidelines to ensure well-tailored assistance to country conditions and consistent policy prescriptions The Bank needs to increase its assistance in building capacity to ensure sustainable reforms
3	The Strategy for Pension Reform The Bank has been a leader in pension system reform The Bank strategy supports a flexible, multi-pillar framework, under the appropriate macroeconomic, social, and financial conditions The multi-pillar framework consists of a public unfunded pillar, a private funded pillar, and a voluntary pillar
4	The World Bank Strategy
5	The relevance of the Bank’s strategy Bank strategy on pension reform is relevant to poverty reduction among the aged Bank thinking on pensions has continued to evolve as pension issues are debated
6	The Bank’s Support for Pension Reform (1) Bank economic and sector work provides an extensive technical background on pension policy Analysis of fiscal issues and private pension regulation has been thorough, but inadequate attention has been paid to income of the aged and ways to expand coverage
7	The Bank’s Support for Pension Reform (2) Both pay-as-you-go and multi-pillar pension systems supported by the Bank varied widely Bank lending operations and non-lending work, however, focused mainly on countries that implemented multi-pillar reforms The majority of ratings for pension components and the projects overall were satisfactory
8	ECA and LAC Received More Support for Pension Reform Than Other Regions from Fiscal 1984 to 2005
9	Countries with Multi-pillar Systems Received More Assistance
10	Quality at Entry for Pension Reforms The Bank supported PAYG reforms in many countries where initial conditions were inappropriate for multi-pillar reform The Bank also supported multi-pillar reforms in some countries lacking macroeconomic stability, banking sector readiness, moderate indebtedness, and a low risk for corruption, In some countries, the Bank did not fully consider all non-contributory options to expand the safety net to those outside the formal pension system
11	Many Countries with Multi-Pillar Reforms Had High Inflation at Reform
12	Poor Financial Sectors Characterized Some ECA Multi-pillar Reformers
13	Many Reformers Had Poor Corruption Index at the Time of Reform
14	Some Multi-pillar Countries Already Had High Savings Rates
15	The Impact of Pension Reforms Both multi-pillar and parametric reforms have helped improved fiscal sustainability, but the improvements are not sufficient for the long-term In many countries with multi-pillar systems, funded pillars were not well-diversified and remained open to political influence The secondary objectives of funded plans—to increase savings, develop capital markets, and improve labor market flexibility—have remained largely unrealized
16	Fiscal Deficits Have Grown in Many Countries with Second Pillars
17	In LAC, Only Some Funded Pension Portfolios Are Well-Diversified (percentage of holdings as of December 2002)
18	Savings Rates Increased Only in Kazakhstan
19	Market Capitalization Remains Quite Low
20	Pension Participation Rates Have Not Changed in LAC
21	Building Institutional Capacity The problems in Bank assistance in supporting pay-as-you-go administration appears to be related to inadequate Bank and client supervision Despite the success of the Bank’s pension simulation model (PROST), technical assistance has not been sufficient in developing local expertise The Bank has made few loans to strengthen the regulatory environment
22	World Bank Coordination The Bank’s internal and external collaboration with other international agencies and with its client countries have affected the success of Bank-assisted reforms Inconsistency in Bank policy often results from a lack of coordination among Bank sectors involved in pension reform Relations with other donors has also weakened some outcomes In its country relations, the Bank has not always effectively incorporated the concerns of all stakeholders involved in the process
23	Outcome Ratings Varied Considerably according to IEG Case Studies
24	Bank Performance Varied Considerably according to IEG Case Studies
25	Even the Best Reforms Have Continuing Challenges
26	Recommendation 1: Develop Guidelines to Design Pension Reforms and Pay Greater Attention to Parametric Reforms Pay greater attention to parametric reforms to ensure fiscal sustainability and to the macroeconomic, financial, and institutional sector preconditions necessary for a multi-pillar reform. Be more realistic in presenting the benefits of the secondary objectives of pension reform in dialogue with client countries
27	Recommendation 2: Build Better Client Capacity Develop a checklist for client capacity requirements (including contribution collection, contributor database development, actuarial and policy analysis, regulation of multi-pillar operations) . This would involve ensuring that a plan for technical assistance is put in place for reform initiatives so that client capacity is developed.
28	Recommendation 3: Improve Internal and External Coordination Develop a process to ensure that cross-sector issues are considered including financial issues identified by the FSAP and maintain closer coordination between the Development Economics vice presidency, the Networks, sector units, and country units. Develop a strategy to play a greater role in consensus building among stakeholders, in particular, other international organizations and client agencies.