Features of the foreign experience of strategic management of the development of national pension systems

Kovalev Vladislav Alekseevich ORCID: 0009-0000-2110-6400 Student; Chair of Public Finance; Financial University under the Government of the Russian Federation 49/2 Leningradsky Ave., Moscow, 125167, Russia kovalevdocs@mail.ru Other publications by this author

Introduction. The growing scale of pension systems in the context of the number of participants, institutions and the volume of redistribution of GDP for pension provision (including insurance), the complication of socio-economic relations regarding it ^[1], as well as the significant impact of long-term demographic trends on the financial stability of pension systems and the effectiveness of financial and investment models of pension provision, led to to increase the relevance of issues related to the management of the development of national pension systems and the need for Governments to develop long-term plans for their improvement. The purpose of the study is to determine the main characteristics of the strategic management of the development of pension systems in foreign countries. The objectives of the study, in accordance with the purpose, were defined as follows: (1) identification of factors indicating the parameters of strategic management of the development of pension systems; (2) selection of countries to analyze the experience of forming long-term plans for the development of pension systems; (3) study of the main characteristics of strategic documents and identification of their features; (4) assessment of the priorities of the strategic development of pension systems in the world.

The management of the development of the pension system is defined by the author of this article as purposefully influencing it to ensure the performance of functions, increase or maintain its effectiveness and sustainability. In turn, the strategic management of the development of the pension system, according to the author, is primarily related to the planning and implementation of long-term programs that are interconnected with the long-term goals of the development of the state, fiscal, social and monetary policy, setting goals and guidelines for the pension system and containing a set of reasonable tasks, tools, methods and financial resources to achieve the set goal. goals.

Factors of construction and strategic development of pension systems. First of all, we will identify the factors that influenced and are influencing the creation and management of foreign pension systems of one design or another, in order to determine the context in which their strategic development takes place. This will make it possible to identify the factors that determine certain provisions of the long-term plans of governments for the development of pension provision and complicate or contribute to their implementation and achievement of goals.

The use of the PAYG (pay-as-you-go) model in the world has grown rapidly since 1950, due to the expansion of social security programs, including pension insurance, and the desire of governments to maximize their coverage of the population ^[2]. Particular importance is attached to the presence of an "unforeseen" benefit ("windfall gain"), which consists in the fact that the first generation of elderly people will receive pensions in the disabled, "without paying" for them, as a factor in the spread of PAYG in the world after World War II. At the same time, there was an increase in the level of pension provision simultaneously with an increase in social insurance contribution rates: from 1955 to 1995, the replacement rate in state pension plans increased from 47.5% to 65.4%, and the contribution rates in them increased from 17.4% to 28.0% ^[2].

Since the beginning of the 21st century, there has been an active transition to funded pension provision models, which were used in practice long before the start of full-fledged pension systems with wide coverage of the population, as a result of population aging and a decrease in the number of working years, which directly reduces the financial stability of pension systems due to the disparity between contributions and pension payments ^[3]. Such a shift in the context of the effectiveness of the pension system is ambiguous: the volatility of financial markets, including those related to the economic crises of 2008 and 2020, a shortage of reliable assets, low interest rates combined with increased inflation ^[4], led to a slowdown in the transition and the search for a balance between PAYG and savings models. At the same time, the high level of pension provision in distributive models has begun to decline in the last decade, the retirement age has increased, and "defined benefit" plans (hereinafter referred to as DB), with greater certainty and lower risk for insured persons, have been replaced by "defined contribution" plans (hereinafter referred to as DC), which reduce government risks ^[5]. E.T. Gurvich, based on the results of the analysis of the OECD report, writes about the alarming scale of estimates of the long-term effect of population aging: in some countries, it will be necessary to increase public spending on pensions by 3.4-8% of GDP by 2050, while different groups of countries will face different challenges and tasks ^[6].

35 out of 45 OECD countries have public pension schemes at the second level of the pension system, with a predominance of DB models (Table 1), of which 6 countries (Colombia, Costa Rica, Norway, Switzerland, Denmark, Sweden) have mandatory private pension schemes, including 2 quasi-voluntary (Denmark, Sweden) ^[7].

Table 1 – Application of financial models of pension provision based on earnings

Source: compiled by the author on Pensions at a Glance 2023 ^[7].

Despite the fact that the principles of the pension system and the long period of financial relations in it imply "stable rules of the game", the management of the pension system (in which we include the implementation of structural and parametric changes) is a continuous process in world practice ^[8]. This approach is more suitable for operational management, which consists in responding to current changes and adapting. There are questions about determining the format of pension system management and the processes leading up to making decisions on changing the structure of the pension system or pension provision parameters.: how and in what capacity is planning and forecasting carried out? Are there any long-term goals and tasks agreed with them? Are the actions of the Governments consistent with the tasks set? Researchers note the presence of "situational" changes in the Visegrad group countries – they only formed their social systems during a period of high mobility of the demographic situation and global challenges, as a result of which the system changes only in the case of impulses, including external ones, and "does not differ in consistency and strategic orientation" ^[9]. Despite the deep reforms of the pension system in Poland and Hungary (the freezing of the mandatory funded part of pensions) in 2011 during the debt crisis, the management of social systems has not shifted to a linear format and has not led to the emergence of long-term directions for their development. The frequent identification of "waves" of pension reforms – cycles of increasing and decreasing the number of pension reforms in a sample of 24 countries in the period 2009-2019, including developed countries (Germany, Switzerland, Great Britain), is also evidence that shocks and external effects affect pension systems more strongly than government plans and measures. Central and Eastern Europe with large coverage of the population by state pension systems (Czech Republic, Poland, Kazakhstan) and Latin American countries with a focus on funded schemes. It should be noted that the management of the pension system in foreign literature is most often described through the implementation of "reforms" of the system, which generally mean any change in the pension system or pension provision parameters from minor to radical. The mention of "strategies", "government plans", "roadmaps" in the sense of management is much less common than the justification for the need to change the pension system as a result of any factors.

Zhukova T.V. writes about the wave of pension reforms from 1990 to 2008 and the ongoing wave from 2009 to the present ^[10], Beetsma R., Romp W., van Maurik R. A link is established between pension reforms and business cycles ^[11], and the World Bank highlights the innovative phase of pension system development in 1981-2041. His report in 1994 on the introduction of savings plans, according to Zhukova T.V., itself became the driver of pension reforms until 2008. Such cyclical changes in pension systems allow us to put forward the thesis that their development is predetermined by external factors, when active management is limited to measures to preserve the stability of the system, whose nature is determined by the state of public finances ^[12], while it is possible to easily change strategic elements such as goals and priorities of pension policy ^[13]. We should add that not all pension system management measures are highlighted in the government's policy document, including due to the fact that in some cases they are potentially socially frowned upon (for example, raising the retirement age in France from 62 to 64 by 2030 and setting a minimum work experience of 43 years to obtain full-scale pensions caused social unrest and political disputes ^[14]), despite the justification of the reform by increasing the size of pensions and the financial balance of the pension system (matching pension costs to income accumulated for its purposes or the balance of income and expenses of the pension system at the moment and in the medium and long term ^[15]), and it is politically easier to present them as emergency measures than originally planned.

One cannot ignore the fact that the long-term development directions of national pension systems, especially developing ones, can also be determined by the conceptual work of international organizations, for example, The World Bank "Pension Conceptual Framework" ^[16], OECD "Guidelines relating to private pensions" ^[17], the International Monetary Fund ^[18] and the International Organization Labour Organization (ILO) ^[19]).

The importance of an integrated and consistent approach with quality planning is not disputed ^[20]. Let us mention a few examples of long-term programmatic approaches to managing the development of the pension system. The countries for the analysis were selected by the author taking into account the availability of documents for the comprehensive long-term development of national pension systems, the possibility of their search and free access to them.

Features of strategic management of pension systems development. The Roadmap for Pension Reform in Ireland (hereinafter referred to as the Roadmap) was approved by the Government, signed by the Prime Minister and covers the period 2018-2023 and contains 6 areas of action: (1) State pension reform; (2) Creation of an automatic savings registration system ("a new automatic enrollment savings system"); (3) improved governance and regulation; (4) measures to support pension schemes; (5) pension reform for civil servants; and (6) support for a more fulfilling working life. The Roadmap provides a brief justification for the need for reform: an increase in life expectancy, which threatens to accumulate a deficit of up to 400 billion euros by 2050, "anomalies" in the design of the state funded pension system and the lag in the size of pensions (replacement ratio) in Ireland from other countries (Table 2) ^[21].

Table 2 – Prerequisites for the adoption of long-term plans and their duration

Source: compiled by the author based on the research materials ^{[21] [22] [23] [24] [25]}.

For example, the development of state pension provision in the Roadmap is focused on three key objectives: ensuring its adequacy, sustainability and equity. Adequacy is expressed in the fact that the size of state pensions should, at a minimum, protect recipients from poverty. For this purpose, it was planned to link pension indexation with changes in the consumer price index/inflation.

The roadmap ends with a consolidated list of 43 planned measures, indicating the deadline for their implementation, among which we highlight: (1) the establishment of a formal benchmark for the state pension replacement rate of 34%; (2) ensuring that the retirement age will not be raised until 2035 and any change in retirement age after 2035 will be allowed only as a result of an increase in life expectancy, confirmed actuarial valuation conducted every 5 years; (3) the introduction of an automatic registration system and (4) the adoption of a law on raising the mandatory retirement age for civil servants employed before April 1, 2004 ^[21].

The proposal of a number of long-term directions for the development of pension systems in the EU countries was outlined in the Green Paper of the European Commission back in 2010, including ensuring a better balance between the duration of work activity and the duration of receiving pensions and the parallel development of additional private pension savings ^[26] (Table 3).

Table 3 – Objectives of long-term plans for the development of pension systems

Source: compiled by the author based on research materials ^{[21] [22] [23] [24] [25]}.

Ensuring the financial stability of the pension system was one of the priorities of the National Development Strategy "Moldova 2020" ^[24], approved in 2010 and representing the vision of a holistic long-term sustainable economic development of the country until 2020. The main goal of this direction was to guarantee a fair pension system based on a replacement rate that ensures a decent life for citizens (table 4).

Table 4 – Objectives of long-term plans for the development of pension systems

Source: compiled by the author based on research materials ^{[21] [22] [23] [24] [25]}.

The strategy contains the identified problems faced by the pension system of Moldova, with the inclusion of projected values of pension provision parameters in the absence of reforms scenario, including:

1. failure to reach the average old-age pensioner's subsistence level (70.6%), low replacement rate (28.2%);

2. The small number of contribution payers in the public social insurance system and the imbalance in the number of payers and pensioners: the ratio of the working population to pensioners is 1.18:1, whereas, according to the estimates of the Moldovan government, the ratio of 4:1 – 5:1 is required for the effective functioning of the funded system.;

3. the aging of the population, the different retirement ages for men and women (at that time 62 and 57 years, respectively);

4. discrepancies in the gender of wages and the average length of insurance experience (32.5 years for women and 37.5 for men), low level of income subject to social insurance contributions;

5. The financial deficit in the social insurance system, which has been covered by the State budget since 2010;

6. Unfair redistribution of funds in the social insurance system, which consists in providing preferential pension insurance conditions (lower retirement age and required work experience) to certain categories of citizens, which, according to government estimates, is losing relevance in the process of transition to a market economy;

7. Weak trust in the pension system and insufficient information about the pension system, leading to tax evasion;

8. Underdevelopment of non–state pension provision - in 2010, only 2 non-state pension funds were registered in Moldova, which do not have significant performance indicators due to lack of interest from the population and insufficient incentives for employers ^[24].

The strategic vision for the development of the pension system included: (1) bringing the organization of the functioning of the national pension system in accordance with international principles; (2) increasing and unifying the retirement age and seniority requirements; (3) accumulation of funds in the reserve fund of the state social insurance budget; (4) study of the possibility of introducing a funded component, which was planned to be implemented within 5 years after the adoption of the strategy (by the end of 2015). The effect of the strategy's implementation was estimated to reduce the proportion of pensioners below the absolute poverty line by 2 percentage points in 2020 compared to what would have been observed without the reforms ^[24].

The strategy established indicators for its implementation, including targets by 2015 (after 5 years) and by 2020 (after 10 years), shown in table 5, affecting both the adequacy of pension payments and the balance of the pension insurance system: it was planned to eliminate the state social insurance budget, increase the replacement rate and the ratio of the average the amount of pensions to the pensioner's subsistence level. At the same time, the target replacement rate is lower than the minimum value of 40% set for a typical beneficiary in Convention No. 102 of the International Labour Organization on Minimum standards of social security ^[27], and its average value in the EU and OECD countries of 54.7% ^{[28] [29]} and the result of the implementation of Moldova 2020 is not It provides for achieving the average pension amount of the pensioner's subsistence level.

Table 5 – Indicators of the implementation of the development direction of the pension system of the Moldova 2020 strategy

Source: compiled by the author on Moldova 2020. National Development Strategy: 7 solutions for economic growth and poverty reduction ^[24].

The plan for the development of the social insurance sector, which is part of the national development plan of the country until 2030 "Vision-2030" was presented back in 2009 by Jamaica ^[30]. It includes an analysis of the current situation in the social insurance system, including a SWOT analysis, the goals and expected results of the plan, targets in 2012, 2015 and 2030, the timetable for the implementation of measures and the procedure for monitoring and evaluating the implementation of the plan.

Within the framework of the strategic document of Mongolia's long–term development policy "Vision 2050", approved in 2020, three stages of strengthening the national social insurance system, including pension insurance, were identified ^[25].

The first stage of 2021-2030 provides for the transfer of pension insurance to a three-tier system: (1) basic pensions paid to all pensioners; (2) pension insurance based on the amount of contributions; (3) additional non-state pension insurance, expansion of social insurance coverage and provision of adequate targeted assistance to vulnerable households and citizens. For comparison, in 2015, Mongolia implemented state DB schemes for citizens born before 1960 and NDC plans for those born later ^[31]. The second stage of 2031-2040 includes the creation of a pension reserve fund at the expense of income from mineral deposits and mortgage loans, as well as a partial transition of pension insurance to a semi-savings system with the termination of insurance contributions by citizens born after 1979. The third stage of 2041-2050 provides for the transition of pension insurance completely to an accumulative model ^[25].

In addition, the strategy details in more detail the measures that are planned to be implemented in the first stage, including the provision of a basic pension for all elderly people.

Vision-2050 contains a list of indicators for monitoring and evaluation, and their target values in 2025, 2030 and 2050 for each of the development directions (Table 6), as well as a data source for evaluation, methodology and frequency of data collection and the name of the responsible organization (institution), however, it does not have indicators that are traditionally directly related to related to assessing the effectiveness of pension provision (for example, indicators include the level of poverty and indicators of consumption inequality).

Table 6 – Criteria for evaluating the implementation of long-term plans for the development of pension systems

Source: compiled by the author based on research materials ^{[21] [22] [23] [24] [25]}.

The provisions on the development of the old-age social insurance system are contained in the five-year plan for 2021-2025 of the National Economic and social development of the People's Republic of China as part of the "Vision 2035 of the People's Republic of China", including: (1) achieving coordinated national management of basic insurance funds; (2) reducing restrictions that hinder workers to participate in insurance with flexible employment; (3) adjustment of the basic pension for urban workers; (4) formation of a multi-level and multicomponent old-age insurance system, which will have well-regulated private pensions as the third level ^[32].

As part of the Vision 2021 program developed in 2006 and the Bangladesh Long-term Plan for 2010-2021, the National Social Security Strategy ^[33] and the Action Plan for its implementation ^[34] were adopted in 2015, providing for the creation of a comprehensive pension system for the elderly with: (1) old-age benefits for the elderly (2) the establishment of a National Social Insurance Scheme based on the principle of joint payment of contributions by employers and employees;; (3) promoting the development of a private voluntary pension, which is open to all citizens, regardless of the type of activity or the formality of employment until 2019; (4) the development of direct payments to the "G2P" population. The above tasks are divided into activities with the allocation of a cluster of government authorities and organizations responsible for them.

The analysis showed a number of patterns: (1) With the exception of Tajikistan, the planning period for the development of the pension system does not exceed 10 years; (2) the actual deterioration of the demographic situation is a prerequisite for reforms in 4 of the 5 analyzed countries; (3) in Tajikistan, Moldova and Mongolia, long–term goals for the development of the pension system are included in the development strategies of the entire state, in the EU - in a separate document; (4) only in Ireland is the transition to a funded pension system included Among the high-level goals, 3 out of 5 countries included the long-term sustainability of the pension system.; (5) All countries have set the task of introducing or improving the funded component of the pension system; (6) among the quantitative indicators of implementation: the replacement rate, the growth of the real size of pensions, indicators of inequality and poverty; (7) only in Moldova there is an indicator of ensuring the financial balance of the pension system.

It should be noted that strategic documents, the subject of which is the development of the pension system, can be adopted not only at the level of the central government, but also at the level of government institutions (Government Pensions Administration Agency, South Africa ^[35], The Pensions Authority, Ireland ^[36], Social Security Administration, USA ^[36]) control and regulatory authorities (Financial Conduct Authority (FCA) and The Pensions Regulator in the UK ^[38]), administrators of municipal pension plans (British Columbia Municipal Pension Plan, Canada ^[39]).

Thus, the strategic management of pension systems development, which consists in the development, implementation, monitoring and evaluation of long-term plans of governments and responsible entities to change the parameters of pension provision and the structure of the pension system based on long-term forecasting and foresight, is difficult in global practice: the critical impact on their financial stability, sufficiency and effectiveness of pension provision factors the aging of the population, fragmented employment, an increase in the demographic burden coefficient, economic crises and increased uncertainty in financial markets, the effects of which are observed on different scales for each country, and both with strong time lags and without, creates a situation of predominantly situational and operational management of pension systems through pension reforms in order to reduce government spending on old-age pension provision, preventing an increase in public debt and reducing government obligations to the elderly and disabled population as a whole. The general trend in the development of pension systems was to significantly expand pension coverage and increase the adequacy of pension payments almost until the beginning of the 20th century due to the creation of large-scale monetary funds circulating in them, in most countries, nationwide pension distribution systems that used both budgetary and insurance mechanisms. Further, under the influence of the above-mentioned factors and the fundamental work of international organizations, accompanied by their financial and organizational assistance, the role of accumulative pension provision mechanisms began to actively increase, especially those implemented by private organizations, with mixed results in different countries, including due to the unwillingness of most of the population to independently address their pension provision and proper planning ^[40]. Closer to the present, states are faced with the continuing influence of negative factors that mediate the development of pension systems. We observe an almost global trend in their functioning and cycles of pension reforms, confirming the inertial development of national pension systems. However, we studied the experience of their strategic management in individual countries: the demographic situation, the low adequacy of pension payments in the distribution model, and the shortcomings of the funded mechanism were the most common reasons for developing a long-term plan. The main objectives of the development of pension systems were to ensure their financial stability and increase the level of pension provision, the methods of achieving them were the development of three–tier pension systems with an emphasis on the accumulative mechanism, with a planning horizon of 5 to 30 years. Only in Ireland, the indicators for the implementation of the long-term plan include the absence of an unplanned increase in the retirement age for 17 years, which corresponds to the global trend of increasing this indicator ^{[41] [42]}. It should be noted that automatic adjustment or stabilization mechanisms that simplify decision-making on measures to change pension provision parameters ^[43] were not included in any of the analyzed documents. The details of the activities of the strategic documents, as well as the quality of the indicators of their implementation, vary from a detailed schedule with clear criteria in Ireland to a statement of the main directions and the absence of direct indicators related to pension provision in Moldova.

Conclusion. The strategic development of pension systems is difficult, as inertial management remains in world practice, reflected in cycles of increasing or decreasing pension reforms caused by changes in macroeconomic indicators or the demographic situation. The operational, short- and medium-term management of the pension system prevails over the strategic one. Their development is carried out through cycles of parametric and structural transformations of varying intensity, due to the rapid growth of public debt and social security spending, demographic factors and the lack of internal stabilizers. At the same time, the management of the development of young pension systems in developed countries (for example, Poland, Hungary, Slovakia, the Czech Republic) is characterized by greater shortsightedness. At the same time, long-term plans of individual countries to improve the pension system are both included in the development strategies of the entire state (for example, in Mongolia and China) and are separate strategic documents (for example, in Ireland). With a planning range of 5 to 30 years, they approve target values for indicators related to the size of pensions (replacement rate, ratio to the pensioner's subsistence level), the financial stability of the pension system and pension insurance parameters (for example, retirement age, the order of indexation of assigned pensions). The development of pension systems in the strategic plans includes both the expansion of the pension system and the modernization of its individual components and pension plans, the development of savings programs. In some countries (Ireland, Bangladesh), the documents also contain a schedule of government actions for their implementation, including a breakdown into stages.

Thanks

The article was prepared under the scientific supervision of Igor Viktorovich Balynin, PhD in Economics, Associate Professor, Associate Professor of the Department of Public Finance, Faculty of Finance, Financial University under the Government of the Russian Federation.