strategy

Privatizing state pension funds

Context:
The pressure for pension fund reform has come from various areas. One has been the increasing gap between contributions and payments due to demographic reasons, the design and structure of the pension systems themselves, the effects of the recession on employment, fraud and the use of pension fund reserves to finance fiscal deficits. This has caused major problems in many countries. It has led some developing countries, such as Chile, to move from pay-as-you-go schemes (PAYG) to privately managed individual capitalization schemes. On the other hand, there has been the concern among some governments to extend social insurance in terms of increasing the population and contingency coverage of pension or social security benefits. And this has led some other developing countries, such as Ghana to move in the opposite direction, from a state administered individual capitalization scheme to PAYG-based social insurance. In between these two types of reforms, one in the direction of a privatized fully-funded defined-contributions pension system, as in Chile, and the other in the direction of a state-run partially funded defined-benefits pension system, as in Ghana, other types of reforms are possible, for example one combining state-run partially-funded defined-benefits pensions with privately-managed fully-funded defined-contributions pensions, either on a voluntary or mandatory basis.
Problems:

Type Classification:
D: Detailed strategies
Related UN Sustainable Development Goals:
GOAL 3: Good Health and Well-beingGOAL 16: Peace and Justice Strong Institutions