Anita Schwarz

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					International Experience
 with Private Retirement
        Accounts
     Anita M. Schwarz
     Senior Economist
       World Bank
Growing Trend Toward Private
    Retirement Accounts
 Why Move Toward Private
  Retirement Accounts?
Prefunding helps prepare for costs of
an aging society
Experience with publicly managed
funds has been disastrous
More equitable if mandatory since
higher income workers already
supplement social security
 Demographic Change in
    OECD countries
60+           0 -14                0 -14
19%           18%                  17%
                      60+
                      32%




                                   15-59
      15-59
                                    51%
       63%

      2000                  2040
           Experience with Public
               Management
    Uganda
    Zambia
Venezuela
       Egypt
   Ecuador
  Sri Lanka
Guatemala
      Kenya
   Jamaica
    Canada
 Singapore
   Morocco
Costa Rica
       India
   Malaysia
         US
   Sweden
Philippines
      Korea
      Japan


     -15.00%   -10.00%   -5.00%   0.00%   5.00%
Why Mandatory Rather than
      Voluntary?
Higher income workers already
supplement social security
Lower income workers often don’t
have the same access
Can only reduce main system benefits
if assured that all people have
supplemental pension
Characteristics of Private
 Retirement Accounts
Mandatory – an integral part of the
social security package
Often an add-on – where contribution
rates are relatively low
Where contribution rates are high,
often social security contributions
reduced
     Contribution Rates to Private
        Retirement Accounts
         Sw itzerland
Colombia (DC option)
    Peru (DC option)
               Chile
              Boliv ia
             Mex ico
Argentina (DC option)
         Kazakhstan
          Hong Kong
            Hungary
            Uruguay
             Poland
            Australia
     United Kingdom
         El Salv ador
            Sw eden
             Croatia
            Denmark



                         0   5   10     15       20     25   30

                                 PAYG   Funded Pillar
            0
                 5
                     10
                          15
                               20
                                    25
                                         30
                                              35
      Austria


     Belgium


      Canada


      Finland


      France


    Germany


      Greece


      Iceland


         Italy


       Japan


Luxembourg


 Netherlands


    Portugal


       Spain
                                                         Security, OECD




     Sweden


 Switzerland


United States
                                                   Contribution Rates to Social
Overall experience has been
         successful
 In developing countries, small issues have
 arisen:
 –   Financial market depth
 –   Strict regulation of funds reduces choices to workers
 –   Size of market resulted in little competition
 –   Administrative costs
 Would not expect these issues in the US
 case
 Popular Despite Political
        Rhetoric
Before introducing private retirement
accounts, politicians endlessly debate
political feasibility
In country after country, when people have
been given the choice of whether to join the
new system or not, they overwhelmingly
choose the new system