Pension Systems Dynamics: A Pooled Data Analysis

Pension Systems Dynamics: A Pooled Data Analysis

Salvador Rivas-Aceves (Universidad Panamericana, Mexico), Edmundo Marroquín-Tovar (Universidad Panamericana, Mexico) and Héctor X. Ramírez-Pérez (Universidad Panamericana, Mexico)
DOI: 10.4018/978-1-5225-3616-1.ch007
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Abstract

The main focus of the chapter is to define directions and magnitudes of causality of the pension systems, labor force, and hours worked for selected OECD (Organization for Economic Co-operation and Development) countries through a pool data analysis. The information is examined within basic, intermediate, and advanced statistical analyses by regional comparison of the OECD countries. Main results include: (a) a positive impact of Labor Force size on Pension Systems, (b) a negative effect of the Average Hours Worked on Pension Systems, (c) when introducing cross-section and time series heterogeneity, relations are sustained from both global and regional inquiry, (d) an insightful and meticulous investigation can be performed using public and open databases if depuration of the information is well conducted.
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Background

The scope of the literature review was set to open access publications from OECD, according to the objective of this study. After reviewing the main sources and publication dates of the publications retrieved, the authors realized that chapters, graphs, and tables can be found in books written and published by OECD, so they are included in the publications retrieved by the search engine. The main source was Pensions at a Glance, published every two years; the latest version was published in 2015. The authors decided to narrow the search to editions in English with a publication date on or after 2012, considering that Pensions at a Glance (2015) included the findings from previous OECD’s publications and compiled updated data related to pensions of the OECD countries and several non-OECD countries.

The main concern of this research was that “pension systems are facing crucial and far-reaching challenges” (OECD, 2014B, p. 9) due to demography and life expectancy, so “reforms in the pension system are needed to extend coverage” (De la Maisonneuve, 2015, p. 3). The OECD stated, “pensions are under pressure from the retiring of the baby boom generations, [as well as] the improvements in mortality and life expectancy” (OECD, 2014B, p. 9).

OECD (2015A) established that “first-tier old-age pensions are defined as the first layer of protection of the elderly” and may have three components: (a) a basic pension, (b) a minimum pension, and (c) social assistance. Pension systems around the globe have been changing from a common fund for elderly people using a basic pension scheme to a pension based on individual’s contributions using a defined contribution scheme, according to OECD: “Most OECD countries have already moved or are moving towards a more diversified pension system, where PAYG [pay as you go] pensions need to be complemented with funded pension arrangements and other savings in order to ensure retirement income adequacy” (OECD, 2012, p. 101).

However, those efforts are not enough due to changes in many factors, including demography, life expectancy, hours worked, wages, and technology. Fall and Bloch (2014) found that pension schemes have been reformed in most OECD countries over the last twenty years to cope with the demographic trend towards ageing populations; yet, more efforts are needed to ensure the long run financial sustainability of pension schemes while preserving pension adequacy, and a sound, prudential regulatory framework for private and defined-contribution schemes is needed to protect individuals’ pensions.

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