Pension reform in Hungary : a preliminary assessment

Hungary is entering the fourth year of a multi-pillar pension reform that has proved popular among workers despite initially lukewarm support from the government that succeeded the reforming government, and despite the poor initial performance of capital markets because of Russia's crisis in 1998. Roughly half the labor force joined the new system voluntarily. Most who switched were younger than 40. Many people switched to the system because it offered more risk diversification. The pay-as-you-go (PAYG) system, which had been severely damaged by repeated manipulation of its parameters, clearly offered a low return on contributions. The new system is still predominantly PAYG. The first pillar accounts for more than two-thirds of the total contribution, but the new second pillar offers the chance of higher average returns on contributions. Most workers probably intuited the risk and returns inherent in a pure PAYG system and mixed system, including the capital market risk in the second pillar and the political risk in the PAYG pillar. The new system offers better prospects of long-run risk-adjustment returns for young workers, and most young workers effectively opted for the new system. But the new system was probably oversold as well, making older workers - who would be better off staying in the reformed PAYG system - switch too. The government has so far decided not to increase the contribution to the second pillar from 6 to 8 percent, as originally planned, so efficiency gains in labor and capital markets may also be smaller than expected. Addressing projected deficits in the PAYG system may require further adjustments, such as delaying the retirement age and shifting to indexed prices, reducing netbenefits to future generations. Reform has sharply reduced the severe initial bias against future generation but hasn't eliminated it altogether. The voluntary switching strategy achieves the same outcome as a forced switch based on an arbitrarily cutoff age, while preventing legal problems and contributing to the reduction of the implicit pension debt. But it leaves a few individuals worse of the if they'd chosen their best option - a problem a well-designed public information campaign can reduce.Environmental Economics&Policies,Public Health Promotion,Health Monitoring&Evaluation,Pensions&Retirement Systems,Banks&Banking Reform,Pensions&Retirement Systems,Banks&Banking Reform,Health Monitoring&Evaluation,Environmental Economics&Policies,Information Technology

Inflation and stabilization in Yugoslavia

This paper shows that inflation in Yugoslavia shares common elements with inflation in other highly indebted countries, despite appearances other-wise. These common elements include a large transfer of resources abroad unmatched by an internal adjustment, resulting in a large internal redistribution of real resources through inflation. The author argues that Yugoslavia differs from other countries in that these internal conditions are not transparent. Instead of an open fiscal deficit, there were complex interactions among enterprises, commercial banks, and the central bank, involving, among other things, the absorption and servicing of a large stock of foreign exchange liabilities by the central bank. Events in the second half of 1990 also indicate that, for a stabilization program to succeed in Yugoslavia, there must be much greater political resolve to cope with wage indiscipline and loss-making enterprises than was observed in 1990. And the question remains whether financial discipline can be imposed in the system only at the macroeconomic level and without introducing private ownership of capital. The ultimate question may be whether stabilization can succeed without a comprehensive privatization program.Economic Stabilization,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Macroeconomic Management

Enabling conditions for second pillars of pension systems

This note adds to the existing literature by examining the enabling conditions for the creation of mandatory funded pension funds, and identifying additional factors that are important to consider in the early stages of the reform. The note stresses the importance of some factors that had already been identified in previous literature but not fully observed by reforming countries, including the strong and lasting commitment of the authorities with the reform, the fiscal commitment with the reform, and some basic financial infrastructure. The analysis is also extended to analyze the role of supervision in the early stages of the reform and the role of the government in fostering the development of the domestic capital market.Debt Markets,Emerging Markets,,Access to Finance,Banks&Banking Reform

Competition and performance in the Hungarian second pillar

The performance of the Hungarian second pillar since inception has been mixed. This is partly due to a less than satisfactory support for the 1997 pension reform, conservative fund portfolio distributions, the hybrid nature of the mandatory pension fund system, the segmented nature of the market in terms of costs, and a less than aggressive commitment on the part of the Hungarian Financial Supervisory Authority to a low-cost, transparent, and competitive equilibrium. In the accumulation phase, the authorities would need to further promote transparency and comparability of information on costs and investment performance, facilitate migration to lower cost funds, and more generally promote competition. The regulatory framework of the payout phase needs to be overhauled before the first cohort of workers retires.Investment and Investment Climate,Economic Theory&Research,Economic Stabilization,Financial Intermediation,Settlement of Investment Disputes

The Hungarian pension system in transition

After discussing the evolution of the policy dialogue in Hungary, this report broadly describes the reform of the pay-as-you-go public pension system and its partial privatization as legislated in July 1997. Through a combination of a debt and tax financed transition, the first partial pension privatization in Central Europe is shown to generate increased national savings while placing the pension systemon a more sustainable course. The potential positive impact on savings was diminished by politically-motivated compromises. Outstanding issues include problematic features of the"second pillar"and the reemergence of pay-as-you-go deficits in the long run. This suggests that further reforms, such as raising the retirement age beyond 62, will eventually be required.Pensions&Retirement Systems,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics,Economic Theory&Research

A summary and update of developing annuities markets : the experience of Chile

The rapid growth of the market for retirement products in Chile has its origins in the pension reform that was implemented in 1981. But the successful development of an active annuity market also reflects many other factors. This paper summarizes and updates an earlier longer study on the development of the Chilean annuity market. The update focuses on the numerous changes that were introduced in 2008. The most striking aspect of the Chilean experience is the very high rate of annuitization. This has been linked to the restrictions that have been applied to lump-sum withdrawals, the offer of inflation-protected annuities, and the robust prudential regulation of providers. But the level of annuitization has also been supported by the annuitization incentives provided to early retirees and the influence of brokers and sales agents. The recent regulatory changes have weakened the impact of the last two factors, while strengthening the demand for annuities at normal retirement.Debt Markets,Pensions&Retirement Systems,Insurance&Risk Mitigation,Emerging Markets,Non Bank Financial Institutions

Black Strings from Minimal Geometric Deformation in a Variable Tension Brane-World

We study brane-world models with variable brane tension and compute corrections to the horizon of a black string along the extra dimension. The four-dimensional geometry of the black string on the brane is obtained by means of the minimal geometric deformation approach, and the bulk corrections are then encoded in additional terms involving the covariant derivatives of the variable brane tension. Our investigation shows that the variable brane tension strongly affects the shape and evolution of the black string horizon along the extra dimension, at least in a near-brane expansion. In particular, we apply our general analysis to a model motivated by the E\"otv\"os branes, where the variable brane tension is related to the Friedmann-Robertson-Walker brane-world cosmology. We show that for some stages in the evolution of the universe, the black string warped horizon collapses to a point and the black string has correspondingly finite extent along the extra dimension. Furthermore, we show that in the minimal geometric deformation of a black hole on the variable tension brane, the black string has a throat along the extra dimension, whose area tends to zero as time goes to infinity.Comment: 20 pages, 6 figure

The Minimal Geometric Deformation Approach Extended

The minimal geometric deformation approach was introduced in order to study the exterior space-time around spherically symmetric self-gravitating systems, like stars or similar astrophysical objects as well, in the Randall-Sundrum brane-world framework. A consistent extension of this approach is developed here, which contains modifications of both the time component and the radial component of a spherically symmetric metric. A modified Schwarzschild geometry is obtained as an example of its simplest application, and a new solution potentially useful to describe stars in the brane-world is also presented.Comment: Improved version with new solutions. 11 pages, 4 figures. To be published in CQ

GUP Hawking fermions from MGD black holes

We derive the Hawking spectrum of fermions emitted by a minimally geometric deformed (MGD) black hole. The MGD naturally describes quantum effects on the geometry in the form of a length scale related, for instance, to the existence of extra dimensions. The dynamics of the emitted fermions is described in the context of the generalised uncertainty principle and likewise contains a length scale associated with the quantum nature of space-time. We then show that the emission is practically indistinguishable from the Hawking thermal spectrum for large black hole masses, but the total flux can vanish for small and finite black hole mass. This suggests the possible existence of black hole remnants with a mass determined by the two length scales.Comment: 12 pages, 5 figure