DR. OEC. EDGARS VOLSKIS

Transcription

1 TALLINN 7 DECEMBER 2012

2 Implementation dates of 3 pillar pension systems in Baltics: Latvia 2001 Estonia 2002 Lithuania

3 Main reasons of reforming the pension systems in Baltic States Growing Demographic Risks; Growing Fiscal Burden of PAYG Systems; Risk of Raise of Inequality of Incomes; Shortening of Job Service Period. 3

4 The first years of implementation of 2 nd pension pillar were mainly successful due to: Positive public government social campaign; Introduction of the 2 nd pillar coincided with period when the rates of return in global capital markets on financial investments were high; The number of people joining to the system were increasing due commencement of job service of young people (born in 70s and 80s); Amounts of contributions in monetary means in the period from 2002 to 2008 continued to increase due fast growth of all three economies as result of EU pre and post accession, increase of FDIs and inflow of EU funding; Increase of 2 nd pension pillar contribution rates, which increased from 2% to 8% in Latvia, to 6% in Estonia and 5.5% in Lithuania. 4

5 Number of participants DR. OEC. EDGARS VOLSKIS 1,200,000 1,000,000 Dynamics of 2 nd pension system pillar participants 800, , , , LV LT EE Increase of 2nd pension pillar net assets in Baltic countries 5

6 After financial crisis 2 nd pension pillars experienced failures because of : High activity of fund managers at the initial years to involve people in higher risk pension plans; Limited local capital market opportunities as well regulatory restrictions for the investments structure; Lack of preventive financial and legal measures that would limit or even cancel pension plans rewards (administration fees) in case of negative returns reported; Inconsistency and non-transparency of political short term decisions on social insurance system. 6

7 Yield DR. OEC. EDGARS VOLSKIS Dynamics of FDC pension assets returns 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% -30.0% LV LT EE 7

8 Remaining challenges for development of funded pension schemes : Consistent and non-recoverable trend on decrease of returns on Euribor related financial instruments; High unemployment rates had still retained in Baltic States for rather long periods (LV 15%, EE 10%, LT 13%, EU 11%); Low returns on invested pension assets and their trend to remain below wage growth rates; Low participation in voluntary schemes due to lack of financial literacy of pension accounts holders; Lack of Political Championship and Enhanced Supervision Process. No performance based, flat rate management fees charged by fund managers. 8

9 Allocation limits to funded pension schemes (2 nd pillar) : Latvia: Current %, Expected 4% from 2013, 6% ; Total rate on social contributions 35.09%; Lithuania: Current %, Expected 6% from 2016; Total rate on social contributions 32.05%; Estonia: Current 6% - 4% (social insurance budget) + 2% (paid directly by employee), Total rate on social contributions 33%. Management Fees charged to 2 nd pillar by fund managers : Latvia: Administration fees 0.75 % % Lithuania: Administration fees 0.5% %, Subscription fees 3%; Estonia: Administration fees 2%. 9

10 Proposed solutions: Governments should politically enhance and support Long Term Financial initiatives by promoting more investments of funded pension assets into Real Economy Sectors with sustainable growth of capacity and value: Infrastructure Projects; Renewable Energy and Natural Resources; Risk and Venture Capital Investments. Labour Resources n Wage Taxes Wage Growth AL α K β / Σ(L) = P p = Σ W 1 *T p *(1+ Wg av ) i-1 * (1+Y av ) n-1 Technology, Innovations Capital and Investment i=1 Returns INFRASTRUCTURE TRANSPORT WAGES AND TAXES COMMUNICATIONS 10

11 DR. EDGARS VOLSKIS THANK YOU Q & A