Pensions

The most dramatic ageing worldwide is projected to take place in low and middle-income countries. Traditional family-based care for the elderly has broken down in many developing countries without adequate formal mechanisms to take its place. For the elderly, inadequate transfers from either formal pension systems or from informal family and community transfers can severely reduce their ability to cope with illness or poor nutrition.

Old-age social pensions provide an alternative source of income for elderly adults who are not covered by contributory schemes. Social pensions cover close to 35 percent of the population ages 60 years and older in OECD countries and in the Europe and Central Asia, East Asia and Pacific, Latin America and the Caribbean, and South Asia regions.

Old-age social pensions are introduced on the basis of an economy’s needs and capacity, in particular to alleviate poverty, establish the main component of a pension system, or address a coverage gap in an existing pension system. The elderly in the poorest quintile have benefited the most from old-age social pensions, no matter the program design.

Last Updated: Mar 28, 2019

The World Bank Group helps governments analyze, design and reform pensions and social insurance policies. These are aimed to make pensions systems improve their coverage of those in need, to build fiscal sustainability of the programs, and to provide adequate support to prevent vulnerable groups from sinking into poverty.

Globally, more than two-thirds of government spending on social servicies is on old age, disability and survivor pensions.  These large and growing programs face several challenges in the context of population aging:

• Coverage – only one in three workers contributes to a pension scheme globally and the figure falls to one in ten in low income countries
• Sustainability – most public pension schemes are not viable financially and cannot therefore keep their promises to younger cohorts that will retire in the future
• Adequacy – contributory pensions almost never reach the poor so that old age poverty can only be addressed by social assistance – this is the intersection of safety nets and social insurance
• Efficiency – the costs in many private pension systems remain stubbornly high despite well-developed solutions to cut costs across the value chain and pension fund assets are not always invested in productive, long-term assets
• Security – where there are assets to invest these need to be securely governed, invested and supervised and individuals need to have unique IDs so that their contributions and claims can be tracked and paid, to ensure pension promises can be paid out over the decades

In addition to these direct challenges, pension schemes influence the economy through their indirect impact on savings as well as labor and capital markets.  Ultimately, national pension systems affect the entire population.

Last Updated: Mar 28, 2019

The World Bank has 42 active projects across countries spread over all regions. These engagements include lending components in Development Policy Loans (DPLs) in support of major reforms, investment loans to improve administration and a wide range of non-lending technical assistance (NLTA) that relies on several analytical tools such as the Pension Reform Options Simulation Toolkit (PROST) and APEX, a Stata-based micro-simulation model.  The number of reimbursable assistance activities has been growing recently, especially in the Middle East and North Africa Region.  

Last Updated: Mar 28, 2019