INSTITUT DES ACTUAIRES INTERNATIONAL EXPERIENCE IN PENSION REFORM

INSTITUT DES ACTUAIRES INTERNATIONAL EXPERIENCE IN PENSION REFORM David Callund Deauville, 16 September 2005

CHRONOLOGY (1960 s) • 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

CHRONOLOGY (1970 s) • 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 –vfunding • Book: “Employee Benefits in Europe” 1974

CHRONOLOGY 1970 s 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 (1980 s) • Chile: ØIntroduction of AFPs ØHorror of ILO and ISSA ØExcitement of IMF and World Bank ØActuaries and macro-economic analysis

CHRONOLOGY (1980 s) • Indonesia: ØPublic sector pensions: four years’ investigations Ø 1. 2 million actives / 6 million dependants ØPensionable pay • EEC: ØCross-border pensions / draft directives for DG XV

CHRONOLOGY (1990 s) • Transition economies – public policy on pensions: Ø Poland Ø Russian Federation Ø Estonia (and Latvia/Lithuania) Ø Albania Ø Czech Republic Ø Bulgaria Ø Slovak Republic

CHRONOLOGY (1990 s) cont’d • Transition economies – public policy on pensions: Ø Ukraine Ø Kazakhstan Ø Kyrgyz Republic Ø People’s Republic of China

CHRONOLOGY (2000 s) • Focus on Regulation and Supervision: Ø Russian Federation (PFR and NAPF) Ø Kyrgyz Republic Ø Uganda Ø Tanzania Ø Brazil

CHANGES IN FOCUS 1960 s Responding to legislation – state and nonstate benefits integrated. 1970 s Bringing commercial / professional techniques to 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 1980 s 1990 s Macro-economic and demographic analyses and the growth of funding as a financing mechanism. Capital market risks and monetarism. 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 2000 s 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: Ø World Bank Ø IMF Ø IFC Ø ADB Ø Af. DB Ø Europe. Aid Ø EBRD

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 Limited Brock House 57 High Street Maidenhead Berkshire SL 6 1 JT United Kingdom Tel: + 44 (0)1628 776640 Fax: + 44 (0)1628 776624 Email: callund@callund. com Website: www. callund. com