The report is the result of collaboration between the World Bank and the Center of Excellence in Finance in Slovenia, which is a regional institution promoting capacity building in public financial management and central banking in South East Europe. The report also includes input from more than 35 government officials and experts from ministries of finance, ministries of labor, ministries of social affairs, and central banks across Southeastern Europe.
"Without parallel reforms in labor and financial markets, even the best conceptualized pension reform may be derailed by either a lack of political support or by simply not being able to deliver" said Robert Holzmann, World Bank Sector Director for Social Protection & Labor. "As we have seen in Denmark and Estonia, for a country to succeed in reforming their pension system, they must make an effort to reform from different angles. This means it is important for the Ministries of Finance, Labor and Social Affairs, along with the Central Bank to collaborate closely on pension reform to ensure that people have the opportunity to work longer as they live longer and to save for old-age with confidence."
"At the same time the working population, including youths, has to be motivated to start contributing to the pension scheme" added Jana Repansek, Deputy Director of the Center of Excellence in Finance in Slovenia. "These are complex issues, the variety of approaches, and the mixed results of adjustments and reforms call for a continuing discussion in an attempt to answer the question, ‘where do we go from here and how?’"
By 2050, the countries of SEE will see a demographic shift that will leave far fewer working, and more entering retirement. The change in the countries in Central and Eastern Europe and the Baltics (CEB) is broadly similar.
To keep pace with the doubling of the number of elderly to working population, the contribution rate would need to double or benefits will need to be more then halved in order to keep financial balance. The report finds that without deep structural reforms the expenditure for publicly provided and financed pension programs risks derailing fiscal policy in the decades to come, forcing out other important social priorities like health spending and education as a result.
"In essence, governments have three options for pension reform in order to remain sustainable, and none of them are easy decisions" said Holzmann. "They can increase contributions into pensions, they can pay out less, or they can delay retirement so that people contribute longer and start collecting later. For many countries in SEE, the best of these options is to increase retirement age in parallel with a review of payout levels. Currently in some of the countries in SEE, the generosity of pensions is among the highest in Europe."
The way that funds are managed is also addressed in the report, because performance of financial markets needs to be seen in the long term, rather than the short term for pension funds. At the same time, while funds can be invested in riskier assets when beneficiaries are young, as people age it is important to shift to safer assets.
The report presents the results of a conference which brought key stakeholders together to think jointly through the complex issues in need of reform and asked them to offer their reform vision. This in and of itself will yield dividends, because despite being the key agencies involved in pension management, they often have very little interaction.
"Enabling the exchange of views and open discussion in search of the best answers was the most important goal of the conference, and of the recently published book" said Repansek. "It is hoped that the contribution gathered in the volume will be valuable for policy makers in Southeastern Europe and other parts of the world who are planning pension system, labor, and financial market reforms in their countries."
