Aging Populations, Pension Funds, and

Population aging is placing enormous pressures on the pension benefits governments are able to provide. The former transition economies of the countries of Central, Eastern, and Southern Europe (CESE) face unique challenges. The growth of their aging populations outpaces other European countries, while the growth of their financial markets (essential to fund pension provisions) lags behind. With support and direction from the ERSTE Foundation, an Austrian group focused on Central European policy issues, a World Bank team investigated the challenges faced by these countries against the background of international experience from the OECD countries and Latin America. Aging Population, Pension Funds, and Financial Markets: Regional Perspectives and Global Challenges for Central, Eastern, and Southern Europe examines how well the financial systems in the CESE economies were prepared for the challenges of multipillar pension reform, how ready they are for the approaching payout of benefits to the first participants, whether returns from pension funds can be sustained in an aging population, and how determined policy actions might be implemented to complete financial market development.

Preface	p. xi
Acknowledgments	p. xiii
Abbreviations and Acronyms	p. xv
Introduction, Main Messages, and Policy Conclusions	p. 1
Structure of the Book	p. 2
Overview and Key Messages	p. 3
Policy Conclusions and Future Priorities	p. 8
Note	p. 11
Were Financial Systems in CESE Countries Prepared for the Challenges of Multipillar Pension Reform?	p. 13
Multipillar Reforms in Transition Economies	p. 14
Financial Sector Readiness in the Region	p. 23
Current Status of the Financial Sector	p. 29
Conclusions	p. 37
Notes	p. 38
References	p. 38
How Can Financial Markets Be Developed to Better Support Funded Systems?	p. 41
Is Too Much Money Chasing Too Few Assets?	p. 41
Bank-Based and Market-Based Systems	p. 51
Alternative Investment Options in Emerging Countries	p. 55
Conclusions	p. 57
Notes	p. 58
References	p. 60
Population Aging and the Payout of Benefits	p. 63
Lessons for Developing Annuity Markets	p. 64
Preparing for the Payout of Benefits: Challenges and Options	p. 73
Conclusions	p. 79
Notes	p. 80
References	p. 80
Can the Financial Markets Generate Sustained Returns on a Large Scale?	p. 83
Gross Financial Returns and Pension Fund Asset Allocation	p. 84
Net Pension Fund Returns	p. 89
Conclusions	p. 91
Notes	p. 92
References	p. 94
Does Investing in Emerging Markets Help?	p. 97
International Financial Diversification and Domestic Bias	p. 97
Return, Risk, and International Diversification	p. 102
Investing in Emerging Markets	p. 105
Conclusions	p. 112
Notes	p. 113
References	p. 115
Will Population Aging Affect Rates of Return?	p. 119
Demographic Developments and Motivation	p. 120
Will Aging Cause a Financial Market Meltdown?	p. 123
The Impact of Aging on the Implicit Returns of Unfunded Pension Schemes	p. 130
Conclusions	p. 134
Notes	p. 135
References	p. 135
Readiness Indicators	p. 139
Conceptual Considerations	p. 139
Ten Critical Areas of Readiness Assessment	p. 149
Applied Methodology for Rating	p. 155
References	p. 156
Index	p. 157
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Aging Populations, Pension Funds, and Financial Markets : Regional Perspectives and Global Challenges for Central, Eastern, and Southern Europe

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