New Systems for Old Age Security: Theory, Practice, and Empirical Evidence

Abstract

Initial empirical investigations suggest that countries concerned about growth should consider pension reform a potentially powerful tool for improving the welfare of both old and young.

James summarizes the major findings and recommendations in Averting the Old Age Crisis, describing problems in traditional pension systems and proposals for reform. Then she describes how those reforms are being implemented in many countries and examines empirical evidence about pension reform's impact on growth.

Since the publication of Averting the Old Age Crisis, the move toward multipillar systems has accelerated around the world, spurred by demographic and economic forces.

In addition, research has been carried out on some of the critical assumptions underlying the recommendations in the report. Researchers have begun to quantify the effects of a full or partial shift to a funded defined-contribution plan on the supply and allocation of labor, on national saving, and on the development of financial markets.

Results from the studies that have been done so far on the (anticipated and actual) effects of pension reform (in Argentina, Australia, Mexico, Switzerland, the United Kingdom, the United States, and especially Chile) suggest that pension reform can have and has had a positive, possibly large, impact on national saving and the development of financial markets and hence on economic growth.

This paper - a product of the Poverty and Human Resources Division, Policy Research Department - was prepared for the EDI Conference on Pension Reform, November 1996.