Global Experience In Pension Reform Issue 2

In Romania, the pension regulator, Private Pension System Supervisory Commission, reported a surge in asset size and profitability of Pillar II pension funds in 2013. The total net asset value of the 8 Pillar II funds increased by 45.6% in local currency terms, reaching €2.9 billion. The number of participants grew by 3.2% to nearly 6 million, with most of the asset increase attributed to the government's implementation of a planned increase in contributions from 3.5% to 4% of gross wages. The current legislation in Romania requires Pillar II participation to be mandatory for those up to 35 years old and voluntary for those between 35 and 45 years. The government has proposed increasing the contribution rate to 4.5% in the short term to support continued results. The regulator noted that the weighted annual average return rose from 6.2% to 10% in 2013, largely due to a heavy investment in state bonds. The average portfolio was 76% invested in bonds at the end of September, with bond prices having risen significantly during the year. In the United Kingdom, the government has proposed a cap of 0.75% of assets under management as the ceiling on administration costs in both Pillar II and Pillar III schemes. This move aims to boost retirement funds by hundreds of thousands of pounds. The pensions minister believes that enough is enough on charges, and people need to know they are getting value for money when they save in a pension. The proposed cap is lower than that proposed by the Opposition party, and the government default scheme, NEST, has charges of 0.3% a year, far below the rates typically charged by competitors. The UK pension system consists of three pillars: Pillar I, a flat universal pension based on years of contributory service; Pillar II, a compulsory system with at least an 8% contribution to an employer-chosen private pension fund or the government default fund; and Pillar III, a voluntary contributions scheme that can be corporate or open funds. In Switzerland, the government has announced a package of pension reform proposals, known as Retirement 2020, to address the mounting fiscal pressure on the public pension system from population aging. The proposals include increasing the retirement age for women and men, funding the first-pillar pension through a gradual increase in the value-added tax, and adjusting the benefit calculation for second-pillar pensions. Switzerland has a three-pillar system, with Pillar I being a national PAYG scheme, Pillar II being a compulsory scheme financed by employee and employer contributions into corporate or open pension funds, and Pillar III being voluntary contributions by individuals into open pension funds. In Paraguay, a new law was enacted in June 2013, allowing self-employed workers, employers, female heads of household, and domestic workers to voluntarily participate in the country's pay-as-you-go public pension system. The new law entered into force on August 5, and about 40% of the economically active population will be eligible to enroll in the IPS for old-age, survivors, and disability insurance.