2014年-世界发展银行全球_Kyrgyz_Republic_Public_Expenditure_Review_Policy_Notes___Pensions_39页_1mb

Kyrgyz Republic Public Expenditure Review: Pensions Summary

Core Content

This policy note provides an analysis of the Kyrgyz Republic's pension system, highlighting its current structure, financial sustainability, and the need for reform. It is part of a broader Public Expenditure Review (PER) program, co-financed by DFID and SECO, and conducted in close collaboration with the Kyrgyz government. The report outlines the challenges facing the pension system, including demographic changes, low coverage, and financial sustainability, and presents several reform options to address these issues.

Main Issues with the National Pension System

• Low Coverage of Working Age Population: Only 34% of the working age population is currently contributing to the pension system, leading to a projected decrease in old-age pension coverage to about 60% in the future.
• High System Dependency Rate: The current dependency ratio is 39%, with 2.6 contributors supporting one pensioner. If only salaried workers are considered, the ratio increases to 65%, or 1.5-1.6 contributors per pensioner.
• Inadequate Pension Indexation: The current indexation mechanism for the notional defined contribution (NDC) component is insufficient, leading to a projected decline in pension adequacy. The average old-age pension is expected to fall to 25% of average wages within three decades.
• High Cost to the Government: Public pension expenditures have increased to 8.2% of GDP in 2011, with government financing expected to rise to 65-70% of total spending in the long run.
• Aging Population: As the population ages, the system dependency ratio is expected to rise to 70-80% over the next four decades, increasing financial pressure.
• Early Retirement and Informal Economy: Significant early retirement and the high level of informality in the labor market contribute to the high dependency ratio and low contributor base.
• Redistributive Nature: The high proportion of the basic pension in total labor pensions makes the system highly redistributive, potentially discouraging contributions and affecting labor market dynamics.

Financial Projections (No-Reform Scenario)

• Pension Spending: Public pension expenditures are expected to grow significantly, reaching 11-12% of GDP in the coming decades.
• Social Fund and State Budget: The Social Fund currently finances 5.0% of GDP, while the state budget covers 1.0% of GDP. The state budget share is projected to increase to 100% by 2014.
• Dependency Rates: The system dependency rate is already high at 40%, and is expected to increase further due to demographic trends.
• Pension Levels: The average old-age pension is 43% of the average wage of the covered population, but this is projected to decline to 25% within three decades, leading to lower pension adequacy.
• Replacement Rates: The average replacement rate for new pensioners is 45% of average wages, which is expected to fall to 25% due to insufficient indexation.

Proposed Reform Options

The report outlines several reform options to address the pension system's challenges:

• Fix Contribution Indexation: Index contributions to the entire balance and link the indexation parameter to average wage growth.
• Move to Price Indexation: Replace the current discretionary pension adjustment policy with price indexation for post-retirement pensions.
• Link Retirement Age to Life Expectancy: Introduce an automatic adjustment of the statutory retirement age to maintain a constant life expectancy at retirement.
• Redesign Basic and Social Pensions: Replace them with a "democrat" pension, a universal flat benefit based on age and residency (suggested at 65 years).
• Consider Non-Contributory System: Explore a non-contributory pension system focused on basic income support for the elderly, allowing for voluntary contributions.

Key Impacts of Reforms

• Ensure Adequacy of Benefits: Reforms aim to stabilize and increase pension adequacy by improving indexation and benefit structures.
• Better Incentives for Contributions: Enhancing the link between contributions and benefits could encourage more participation and reduce informal sector reliance.
• Maintain Financial Sustainability: Reforms focus on reducing the financial burden on the government and ensuring long-term sustainability of the pay-as-you-go (PAYG) system.
• Contain Costs: Redesigning the pension system could reduce the growing fiscal burden and align it with broader economic trends.

Remaining Issues

• Data and Methodology Gaps: Inconsistent data sources and methodologies affect the accuracy of wage and pension estimates.
• Equity Concerns: The redistributive nature of the basic pension may raise equity issues as coverage decreases.
• Implementation Challenges: Transitioning to a new system requires careful planning and coordination to avoid disruption and ensure fairness.
• Behavioral Factors: The high contribution rate and weak link between contributions and benefits may lead to wage underreporting and evasion.

Conclusions and Way Forward

• The Kyrgyz Republic's pension system is under increasing financial and social pressure due to demographic changes and low coverage.
• Urgent reforms are needed to ensure the system's sustainability and adequacy of benefits.
• A combination of structural reforms, including improved indexation, automatic retirement age adjustments, and potential redesign of basic and social pensions, is recommended.
• The World Bank's PROST model was used to simulate and evaluate the impact of these reforms on financial sustainability and affordability.

Key Data and Figures

• Pension Spending: 8.2% of GDP in 2011, expected to rise to 11-12% in the future.
• Coverage Rates: 34% of working age population contributes, while 91% of the population over 65 receives pensions.
• Dependency Ratio: 39% currently, expected to rise to 70-80% over the next four decades.
• Pension Adequacy: Average pension is 43% of average wage, projected to fall to 25% within three decades.
• Contribution Indexation: Currently indexed at 75% of wage growth, leading to insufficient benefit levels for many contributors.

References and Annexes

• Annex 1: Summarizes the main parameters of the current contributory pension system.
• Annex 2: Details the main assumptions and projection methodology used in the analysis.
• PROST Model: Used to simulate and evaluate the financial and social impact of the proposed reforms.