Old-Age Pension Reform in China

Topics: Pension, United States, Western Europe Pages: 27 (9611 words) Published: March 24, 2013
-aAvailable online at www.sciencedirect.com

Journal of Aging Studies 22 (2008) 74 – 87 www.elsevier.com/locate/jaging

Old-age pension reform and modernization pathways: Lessons for China from Latin America Esteban Calvo ⁎, John B. Williamson
Department of Sociology and Center for Retirement Research, Boston College, Chestnut Hill, MA 02467 USA Received 31 July 2006; received in revised form 26 January 2007; accepted 26 February 2007

Abstract While numerous Western countries first experienced cultural rationalization, next economic modernization, and then faced the challenges of population aging and pension policy reform, both Latin America and China, in contrast, are dealing with these challenges in the context of much less developed economies and stronger traditional cultures. In this article we analyze old-age pension reform efforts in eight Latin American countries that have introduced funded defined contribution schemes with individual accounts. We are searching for insights about the potential success of similar reforms being implemented in China. All of these societies are organized primarily around the principles of family, reciprocity, loyalty and poverty. Our analysis suggests that these distinctive characteristics have important implications for the likely success of the reforms currently being implemented in China, particularly in four interrelated areas: coverage, compliance, transparency, and fiscal stability. © 2007 Elsevier Inc. All rights reserved. Keywords: Pension reform; China; Latin America; Social Security; Culture; Economy; Rationalization

1. Introduction Latin America is a pioneer with respect to the shift from old-age pension schemes based on pay-as-you-go (PAYG) defined benefit models to schemes based all or in part on funded individual accounts. In 1981 Chile became the first nation to make the shift with the introduction of mandatory fully-funded privately managed individual retirement accounts (IRAs). Today there are 12 Latin American countries that have shifted to schemes influenced by the Chilean model (Gill, Packard, & Yermo, 2005; Kritzer, 2005).

⁎ Corresponding author. E-mail addresses: calvobra@bc.edu (E. Calvo), jbw@bc.edu (J.B. Williamson). 0890-4065/$ - see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.jaging.2007.02.004

On the opposite side of the earth, China is following a similar path, though the Chinese IRAs are currently publicly managed and remain largely unfunded (Jackson & Howe, 2004). Since 1995 China has introduced a number of reforms, the most important of which were promulgated in 1997 and 2000. By 2025, one quarter of the world's population aged 60 and over will be living in China (United Nations, 2005). For this reason the success or failure of the reform of China's old-age pension system will affect a major proportion of the world's elderly population (Williamson & Shen, 2004). In many respects the reforms in China have not been working out as had been intended. The major problems faced by the old-age pension reform in Latin America appear again in the newly introduced reforms in China. These problems include low coverage and compliance rates, poor transparency, and serious fiscal difficulties.

E. Calvo, J.B. Williamson / Journal of Aging Studies 22 (2008) 74–87


Our analysis tries to obtain insights about the potential consequences of reforms currently being introduced in China based on evidence from eight Latin American countries – Argentina, Bolivia, Chile, Colombia, El Salvador, Mexico, Peru and Uruguay – that introduced some form of funded IRAs (partial privatization) between 1981 and 1998. Four other countries – Costa Rica, the Dominican Republic, Ecuador, and Nicaragua – are not included because their reforms are so new, because they are not yet fully implemented, or due to the lack of information. Many differences can be found between the Latin American countries, and perhaps even more between them and China....
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