Reporting the implicit pension.pdf - Reporting the implicit...

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policymakers are interested in grasping the size and nature of this liability. Most of the work to date has focused on the IPD of richer, older countries. Yet, almost every developing country has at least one mandatory pension scheme that is not fully funded. Among some countries, such as the former socialist bloc in Central and Eastern Europe, the pension debts relative to national income are extremely large and have serious implications for the intertemporal budget constraint. Others are accumulating IPD at a rapid and probably unsustainable rate. In fact, the situation even in young developing countries is alarming when Introduction Many public pension schemes that were installed or expanded in the post-war period are now maturing. The vast majority are unfunded, that is, pension obligations exist but there are no assets set aside to pay them. The present value of these promises is a liability not reported in standard fiscal accounts. It places important constraints on fiscal policy by committing a future stream of revenues to pay off this implicit pension debt (IPD). As discussed below, the magnitudes involved can be very large so it is not surprising that economists and Henry Stewart Publications 1462-222X (2001) Vol. 6, 4, 355-384 Journal of Pensions Management 355 Reporting the implicit pension debt in low- and middle-income countries Received (in revised form): 26th March, 2001 Robert Holzmann,* is the Director of the Social Protection Department of the World Bank. Until 1997 he was professor of economics at the Universities of Saarland (Germany) and Vienna (Austria) and guest professor at universities in Chile, Japan and the USA. As principal administrator at the OECD (1985–87), he wrote a comprehensive report on public pension reform in industrialised countries. At the IMF (1988–1990), he was working on fiscal and social security issues of Central and Eastern Eruopean transition economies, and he researched intensively the economic and financial market effects of the Chilean pension reform. Robert Palacios is senior pension economist at the World Bank, contributed to the 1994 World Bank Publication on ‘Averting the Old Age crisis’ and is involved in many pension reforms worldwide. Asta Zviniene is social protection specialist at the World Bank and was educated in Lithuania and the USA. Abstract This paper argues that it is important to take into account unfunded public pension liabilities as part of an assessment of the overall fiscal situation. It examines the concept of the implicit pension debt (IPD) and presents estimates for 24 developing countries based on a consistent methodology and assumptions. The policy conclusions stress the need for standardised international reporting of this indicator. Keywords: unfunded public pension liabilities; implicit pension debt (IPD); developing countries; standardising international reporting; policy conclusions *Robert Holzmann World Bank, 1818 H Street, NW, Washington.
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