INSTITUT DES ACTUAIRES

INTERNATIONAL EXPERIENCE IN PENSION REFORM

David Callund

Deauville, 16 September 2005

CHRONOLOGY (1960s)

• Corporate pension liabilities – occupational pensions (sitting on top of state pensions)

• Review of state pensions in Europe• Brussels – US corporate headquarters for Europe• US multi-nationals – centralised pensions

management• European multi-nationals – pensions not

consolidated

• Adviser to many American multi-nationals; frequent visits to USA

• Global activities – Europe / Japan / Australia / Indonesia / South Africa

• State pensions / state provident funds / no state benefits

• Distinction in financing – Pay-as-you-go –v- funding

• Book: “Employee Benefits in Europe” 1974

CHRONOLOGY (1970s)

CHRONOLOGY 1970s cont’d

• First missions to Chile: Kaiser Steel / CAP• Actuarial valuation to show long-term cost of

funding state benefits for CAP employees• Appointed adviser to Chilean Government for

pension policy review• Actuarial valuation of Pertamina pensions

(Indonesia)• Appointed adviser to Indonesian Government in

public sector pensions

CHRONOLOGY (1980s)

• Chile:Introduction of AFPsHorror of ILO and ISSAExcitement of IMF and World BankActuaries and macro-economic analysis

CHRONOLOGY (1980s)

• Indonesia:Public sector pensions: four years’

investigations1.2 million actives / 6 million dependantsPensionable pay

• EEC:Cross-border pensions / draft directives for

DG XV

CHRONOLOGY (1990s)

• Transition economies – public policy on pensions: Poland Russian Federation Estonia (and Latvia/Lithuania) Albania Czech Republic Bulgaria Slovak Republic

CHRONOLOGY (1990s) cont’d

• Transition economies – public policy on pensions: Ukraine Kazakhstan Kyrgyz Republic People’s Republic of China

CHRONOLOGY (2000s)

• Focus on Regulation and Supervision: Russian Federation (PFR and NAPF) Kyrgyz Republic Uganda Tanzania Brazil

CHANGES IN FOCUS

1960s Responding to legislation – state and non-state benefits integrated.

1970s Bringing commercial / professional techniques to the assessment of the assessment of state pension liabilities.

The origins of pensioner protection (USA & Germany) and the concept of Three Pillars (Switzerland). The first oil shock (1974).

CHANGES IN FOCUS cont’d

1980s Macro-economic and demographic analyses and the growth of funding as a financing mechanism. Capital market risks and monetarism.

1990s Post-communist re-organisation of pensions in planned economies: the effects of a codified approach to legislation and regulations to mitigate risks in fragile emerging markets. A default in Russia, post-1997/98 economic crisis

CHANGES IN FOCUS cont’d

2000s Stock market collapse – low inflation – low rates of return – actuarial assumptions under investigation

Re-appraisal of World Bank’s attitude to pension policy

Emergence of an EU Directive

Growing regulatory interference

Growing involvement of accountants (IAS 19)

• The Bismarck / Beveridge debate – what should the state’s responsibility be?

• Conflicts between Ministries of Finance and Labour

• Micro-management of fiscal treatment of pension fund monies by Finance Ministers

• Pension protection funds• Absence of prudent housekeeping

PROCUREMENT PROCEDURES• Best – work direct for client (Government or

Institution)• Most common – third-party funding, involving

financial support from unilateral and multi-lateral donors:World Bank IMF IFCADBAfDBEuropeAidEBRD

PROCUREMENT PROCEDURES cont’d

• Hybrid donors include FIRST Initiative

• Competition (not always technically good)

• Pressure on fee-rates

Challenges for the next 40 years

Callund Consulting LimitedBrock House

57 High Street

Maidenhead

Berkshire SL6 1JT

United Kingdom

Tel: + 44 (0)1628 776640

Fax: + 44 (0)1628 776624

Email: callund@callund.com

Website: www.callund.com