GLOBAL – The World Bank appears to have bowed to criticism of the so-called World Bank pension model by put ting forward a new five-pillar framework.
The bank’s model was outlined more than a decade ago in ‘Averting the Old Age Crisis’ and has been used as a framework in many developing countries. It introduced the three-pillar model and the concept of mandatory individual funded savings.
But it has come under fire for being inefficient and benefiting asset managers at the expense of pensioners.
The Washington-based institution states in a new report: “Reforms ran into some implementation problems, including the accurate transfer of contributions to pension funds and inefficient regulatory institutions.”
It said: “Through its pension reform activities in client countries and the work of other institutions and analysts, the bank has developed a clear understanding of good and best practices—of what works and what does not— in an increasing number of design and implementation areas.”
The new report, by Robert Holzmann and Richard Hinz, is called ‘Old-Age Income Support in the Twenty-First Century: An International Perspective on Pensions and Reform’.
It suggests a new “multi-pillar framework” composed of five basic elements. The first is a non-contributory or "zero pillar" that provides a minimal level of social protection.
Then there’s a "first-pillar" contributory system linked to earnings which seeks to replace some portion of income. Third is a mandatory "second pillar" - essentially an individual savings account.
Fourth comes voluntary "third-pillar" arrangements that are essentially flexible and discretionary in nature. The fifth element is “informal intra-family or inter-generational sources of both financial and non-financial support to the elderly”.
"This report shows us that while pension reforms in most countries initially are driven by the short-term budgetary woes of keeping costly public systems afloat, the more important longer-term problems of worldwide ageing and social change, along with changes in our global economy are an equally important to the debate," said Holzmann, who is director of the bank's social protection unit.
In 2004, 77% of the bank’s $1.6bn in new social protection lending went to risk prevention and mitigation activities such as pensions, unemployment insurance, and social funds, according to its annual report.