Is there a pensions crisis in the UK?

The UK pension system is traditionally seen as offering a good example to other countries, having features such as a low social security burden of the public sector as well as a high coverage of well-financed voluntary private schemes. But recent developments suggest that the model has shown weaknesses. The most pressing current issue is underfunding of defined benefit occupational schemes following the bear market; but there are also the ongoing crises of mis-selling of personal pensions and the failure of Equitable Life insurance company. In this paper we seek to investigate whether there is indeed a crisis and what the locus of the true crisis is. We find that there are important longer-term weaknesses of the UK system as well as these current difficulties, focusing on social security as well as private pensions. Pitfalls faced by UK policymakers offer important lessons to other countries seeking to set up or expand private pension provision

Approaches to capitation and risk adjustment in health care: an international survey

This report is a survey of current capitation methods in health care finance in developed countries. It was commissioned as part of the fundamental review by UK Ministers of the formula used to allocate health care finance to local areas in England, being carried out under the auspices of the Advisory Committee on Resource Allocation (ACRA). The study was commissioned in February 1999 and completed in May 1999. It was informed by a review of published literature and an extensive network of contacts in government departments and academic institutions. A capitation can be defined as the amount of health service funds to be assigned to a person for the service in question, for the time period in question, subject to any national budget constraints. In effect, a capitation system puts a “price” on the head of every citizen. Capitations are usually varied according to an individual’s personal and social characteristics, using a process known as risk adjustment. In most nations, the intention is that the risk-adjusted capitation should represent an unbiased estimate of the expected costs of the citizen to the health care plan over the chosen time period (typically one year). There is an element of capitation funding in the health care systems of almost all developed countries. Capitation is seen as an important mechanism for securing both equity and efficiency objectives. The review examined capitation schemes in 19 countries and concentrated on major strategic risk adjustment schemes implemented at the national or regional level. It identified two broad approaches to setting capitations, which we term matrix methods and index methods. The fundamental difficulties affecting both approaches are a lack of suitable data and the problem of disentangling needs effects from supply effects on health care utilization. Almost all schemes rely on analysis of empirical data, and various analytic methods have been used for setting capitations. Numerous need and cost factors have been used in setting capitations. However, the choice has usually been determined more by data availability than a compelling link to health care expenditure needs. The review concluded that there were elements of many schemes that may be of relevance to the review of methods currently used in England, and which deserve further investigation. However, until improvements in data availability are in place, it is difficult to envisage major enhancements to methods currently in use.capitation

Viewing microinsurance as a social risk management instrument

The objectives of this paper are to highlight some of the potential and limitations of microinsurance in the context of Social Risk Management (SRM) framework to stimulate further discussion. The paper draws on existing literature on SRM and microinsurance. Where relevant, it invokes lessons from microfinance. The authors conclude that there is potential for efficient and equitable risk management through microinsurance, but also limitations. Microinsurance may be an acceptable means of managing a few limited forms of risk, but not all. SRM practitioners need to recognize that effectiveness of any risk management instrument depends on the nature of risks, household and group characteristics and dynamics, and the availability of alternative risk management options. SRM options should strike a balance between household risk management activities and the multiple instruments available at different institutional levels, including informal, market-based, and publicly provided mechanisms. Microinsurance is a potential part of the SRM toolbox, but risk management can be enhanced through different mechanisms or combinations of them.Insurance&Risk Mitigation,Banks&Banking Reform,Non Bank Financial Institutions,Environmental Economics&Policies,Health Economics&Finance

The National Deposit Insurance System - A Market Institution at the Crossroads

The safety net provided by deposit insurance systems gain heavily in weight at times of crisis. The correct set of such a cushion is critical to its effectiveness. While it helps to prevent bank runs, the severe market distortions are of great concern. The short term benefit of public confidence can be, far and away, offset by its long run negative effects consisting mainly in increased moral hazard, heavy public costs and impaired competition.Insurance systems, market distortions, effects, costs, competi

Are financial services over-regulated?

As the Equitable Life saga drags on, accounting scandals break over Enron and WorldCom and allegations of self-serving analysts reports swirl around Merrill Lynch and other US investment banks, this may seem an extraordinary question to ask. But this is the very time that one must beware of the ‘dangerous dogs’ reaction1. It is easy to forget in the immediate aftermath of scandals that extra regulation may achieve little beyond satisfying the call for ‘something to be done’ and can cumulatively cost a lot, even perversely increase the chances of future disasters2. With the EU’s Financial Services Action Plan, the DTI’s consultation on Company Law, the Sandler review of savings and the FSA’s review of polarisation, Listing Rules and simplified product selling, the opportunity for radical change, good or bad, is all to apparent. This article seeks to give an overview of the current position and assess the danger of an over-reaction

Risk Adjustment Systems in Health Insurance Markets in the US, Germany, Netherlands and Switzerland

Gesetzliche Krankenversicherung, Versicherungstechnisches Risiko, Vereinigte Staaten, Deutschland, Niederlande, Schweiz, Public health insurance, Actuarial risk, United States, Germany, Netherlands, Switzerland

The $200 million/year price tag for superannuation fund governance: A case study of fund member loss

As the 21st century began in Australia, 91% of all Australians were covered by superannuation. In turn, total superannuation assets had reached $960 billion by the first quarter of 2006 with balances in superannuation funds now the largest financial asset held by households. This substantial growth in superannuation coverage did not, however, occur as a result of free market forces operating between producers and consumers in the superannuation industry. Rather, this increase can be directly traced to the level of intervention in the industry by both the Labor and Coalition Governments throughout the 1980s and 1990s. This pattern has again been replicated in the 21st century with a "trilogy" of major superannuation reforms occurring in the period from 2001 to 2006 including the 2004 Registrable Superannuation Entity licensing (RSE) regime. However, in spite of the public interest rationale provided by both governments, these regulatory reforms have failed to achieve recognition as a vehicle for advancing the welfare of Australian workers in their role as superannuants or for improving the welfare of the nation. Rather, criticisms relating to interest group lobbying for private gains continue to grow unabated. With further major reforms looming and given both the critical importance of this issue at an individual and social level and the scarcity of existing cost/benefit studies in this area, this research paper seeks to fill this present gap in understanding. The analysis of these opposing claims will be undertaken within the public and private interest theories of regulatory reform. In order to inform this public versus private interest debate, summary data obtained from a recent trustee-based survey on the actual costs incurred and benefits received in relation to the RSE reforms will be utilised

Options for pension reform in Tunisia

Tunisia's pension system provides old age, survivorship, and disability benefits to retired and disabled workers and their dependents. It is a partially funded system based on solidarity between generations. It is designed to provide insurance against loss of income in old age, especially for people who live longer than average, and to redistribute income more favorably toward low-income retired workers. Only to a limited extent does it achieve a third objective: compulsory long-term saving. The author analyzes the structure of Tunisia's pension system, assesses its financial condition, and sets out options for pension reform. He finds that the current system: a) is fragmented, comprising several schemes with different rules and conditions; b) promises generous benefits, with high targeted replacement rates that may be unsustainable; c) despite high benefits, operates with low contribution rates, because both the system and the labor force are young; d) only weakly links contributions and benefits - it suffers from evasion of contributions and inflated benefit claims and redistribution (from capricious favoring of workers with low incomes and short credited service); and e) faces increasing financial pressures because it is maturing and expanding benefits, but its reserves show poor investment performance and it has failed to adjust contribution rates. The author proposes the following main reforms: a) in the short run, reallocating social security contributions from family allowances to pensions and improving the financialperformance of reserves; b) in the medium term, rationalizing benefit formulas through gradual use of lifetime actualized earnings, indexing pensions, gradually increasing the normal retirement age, and exanding the use of proportional pensions for workers with short careers; and c) in the longer term, a more radical program to create a fully capitalized pillar that complements a redistributive pillar paying basic benefits. This would generate long-term savings, stimulate the development of capital markets, and facilitate the privatization program. A third pillar, voluntary savings encouraged by tax savings, would cover self-employed people not covered by occupational schemes.Environmental Economics&Policies,Banks&Banking Reform,Economic Theory&Research,Pensions&Retirement Systems,Health Monitoring&Evaluation

Ethics and geographical equity in health care

Important variations in access to health care and health outcomes are associated with geography, giving rise to profound ethical concerns. This paper discusses the consequences of such concerns for the allocation of health care finance to geographical regions. Specifically, it examines the ethical drivers underlying capitation systems, which have become the principal method of allocating health care finance to regions in most countries. Although most capitation systems are based on empirical models of health care expenditure, there is much debate about which needs factors to include in (or exclude from) such models. This concern with legitimate and illegitimate drivers of health care expenditure reflects the ethical concerns underlying the geographical distribution of health care finance