Pension Reform through Voluntary Opt-Out: The Czech Case

JAHODA, Robert and Jiří ŠPALEK. Pension Reform through Voluntary Opt-Out: The Czech Case. Finance a úvěr Czech Journal of Economics and Finance. Praha, 2009, vol. 59, No 4, p. 309-333. ISSN 0015-1920.

Basic information

• Original name: Pension Reform through Voluntary Opt-Out: The Czech Case
• Name in Czech: Penzijní reforma formou opt-out v České republice
• Authors: JAHODA, Robert (203 Czech Republic, guarantor, belonging to the institution) and Jiří ŠPALEK (203 Czech Republic, belonging to the institution).
• Edition: Finance a úvěr Czech Journal of Economics and Finance, Praha, 2009, 0015-1920.

Other information

• Original language: English
• Type of outcome: Article in a journal
• Field of Study: 50200 5.2 Economics and Business
• Country of publisher: Czech Republic
• Confidentiality degree: is not subject to a state or trade secret
• Impact factor: Impact factor: 0.264
• RIV identification code: RIV/00216224:14560/09:00030148
• Organization unit: Faculty of Economics and Administration
• UT WoS: 000271083300002
• Keywords (in Czech): Reforma penzijního systému; opt-out; penziní fond
• Keywords in English: pension system reform; opt-out; pension fund
• Tags: International impact, Reviewed

Abstract

The importance of long-term public finance sustainability in the context of current financial crisis is still seen as one of the basic factors of economic stability. Demographic development resulting in higher percentage of people in retirement age versus economically active people is one of the main risks. There is a growing pressure on expenditures of age-related systems. For this reason the pension scheme reforms are major issue in advanced countries. While some countries have chosen strictly regulated approach towards pension reform, some have given its citizens a choice whether to stay in the old system, or whether to switch to a new one. Such a decision is very complex and whenever the choice was implemented, many more workers switched to a new system than was expected. In our paper, we present a micro-based simulation model for the Czech Republic that allows us to model the individuals' switching decision using several economic and behavioral factors within an old (PAYG DB) and new (FDC) systems. It allows us to estimate the proportion of people who would opt-out to a funded pillar. Our results indicate that under the assumption of rationality and long run predictability of most parameters, only a small fraction of population would choose the multi-pillar scheme. However, this conclusion holds only under a full rationality. Once we relax this assumption, a wide range of switching strategies become viable. Therefore, the expectations that the switch will be popular cannot be based only on economic factors, but must also incorporate behavioral aspects, such as the risk of aversion.

Abstract (in Czech)

Extenze sociálního státu ve druhé polovině 20. století, spolu s prudce rostoucí nadějí dožití a změnou dosavadního demografického vzorce obyvatel vedly k tomu, že původně malé programy starobního důchodového pojištění se změnily v nejvýznamnější výdajové položky veřejných rozpočtů. Jejich financování se koncem 20. století začalo jevit jako neudržitelné na což vlády musely zareagovat reformami. Jednou z varinat je zavedení tzv. druhého pilíře v podobě fondového (FDC) schématu. Otázkou pak je, jakým způsobem se má systém transformovat. Poměrně diskutovanou variantou v ČR je tzv. opt-out (vyvázání se) z povinného pilíře. Příspěvek se snaží posoudit determinanty, které jednotlivce mohou vést k rozhodnutí ne/vyvázat se. Stejně tak se snažíme odhadnout míru vyvázání v závislosti na několika faktorech, které ji mohou ovlivnit (míra výnosu,příps. sazba).

Links

• HR 164/07, research and development project: Name: Možnost zavedení "opt out" - vyvázání se ze základního povinného důchodového pojištění

Investor: Ministry of Labour and Social Affairs of the CR, The possibility of implementation of "opt-out" in czech social insurance system